Mercantile Bank Ltd., Bombay v. The Commissioner Of Income-Tax, Bombay City-Iii

MERCANTILE BANK LTD., BOMBAY v. 1HE COMMISSIONER OF INCOME-TAX, BOMBAY CITY-Ill MAY I, 2006 B [RUMA PAL AND DAL VEER BHANDARI, JJ.] Income Tax Act, 1961: Section 36(/)(vii) read with Section 36(2)-AY 1978-79-/nterest on C doubtful advances-Liability to tax-Held: Interest on doubtfal loans entered in suspense account could not be brought to tax-Central Board of Direct Taxes Circular, 1952. Section 40-A(5)-AY 1978-79-Expenses or payments-Payment of D salary to serving and retired employees-limits of deduction---Held: Section 40-A(5){cJ(ii) of the Act speaks of ··an amount"'.-This would indicate that the employer is only entitled to deduction of one amount-Therefore, only one limit is prescribed for deduction on account of salary whether paid to an employee in service or a retired employee in any one previous year. E Words & Phrases: '"Aggregate "-Meaning of-In the context of first proviso to Section 40-A{6) of the Income Tax Act, 1961. In this appea~ the following question arose:-F (i) Whether the appellant-assessee was liable to be taxed under the Income Tax Act, 1961 in respect of the interest on doubtful advance credited to the interest suspense account? (ii) Whether two separate limits applied for the purposes of computing G disallowance under Section 40-A(S) of the Income Tax Act, 1961 where an employee retired and ceased to be in employment during the previous year, so that one limit applied in respect of the amounts and benefits received by him as an employee and another for the amounts and benefits received by him as a former employee? The High Court answered both the questions in favour of the Revenue A and against the appellant-assessee for the Assessment year 1978-79. Hence the appeal. Allowing the appeal in part, the Court HELD: 1.1. The Central Board of Direct Taxes had issued a Circular in B 1952 stating that the interest on sticky loans which were entered in the suspense account need not be included in the assessee's assessable income provided the Income Tax Officer was satisfied that there was no real probability of the loans being repaid. [631-G; 632-AI 1.2. Assessment for the year 1978-79 should have been dealt with by C the Department in accordance with the 1952 Circular under which the interest on doubtful could not be brought to tax. [632-G) UCO Bank v. Commissioner of Income Tax, (1999) 237 ITR 859, relied State Bank of Travancore v. Commissioner of Income Tax, (1986) 156 D ITR 102, held inapplicable. State Bank of Travancore v. Commissioner of Income Tax, (1977) 110 ITR 336 (Ker), overruled. 2. The intention of the Legislature was to fix the limits of deduction E under the various clauses of Section 40-A(5) of the Income Tax Act, 1961, Section 40-A(5)(c)(ii) of the Act speaks of"an amount". This would indicate that the employer is only entitled to deduction of one amount. Clause (c)(ii) also speaks of an employee as being not only one who has ceased to be in employment, but one who ceases to be in employment. In respect of the later F it is assumed that the employee served for a period but ceases to be so employed during the previous year in question. In such a case, the Section expressly provides for a limit on the deduction of Rs. 60,000/-. (635-G, H; 636-AI Hindustan Motors Ltd. v. Commissioner of Income Tax, (1985) 156 ITR (Cal) 223, overruled. 3.1. In terms of Explanation 2(a) in Section 40-A(5) of the Act there is only one limit for all salary whatever it may be comprised whether wages or terminal benefits. [636-G) 3.2. Reliance on the use of the word "aggregate" in the first proviso to H 630 SUPREME COURT REPORTS [2006] SUPP. I S.C.R. A Section 40-A(S)(a) was inapt Both the proviso and Section 40-A(6) deal with different kinds of payment or expenditure which, therefore, necessitated the use of the word "aggregate". (636-G-HI 3.3. Section 40-A(S) on the other hand speaks of an "amount" and ,(>. fESaH-caHA aftHed, Fe FA-IIIHETl 2006] Jad AH. JHU ses dldgardt fasaqH caH ni :1961 HAAS )2 (36 )vii( )WS (36c BTS Ula! Are JAl Hal UG|-79-1978 .eTe .u-nmafiss AAA us fea eS AB Te Hat aaepat G3 fears &-ca at aed-[ryt1G31952 ,addi US can Yds HddSd-cayf= Sl LSryteat Al Alon। HaAHS -4-<a10-Ydd Al SSS-79-1978 .eTe .u)-5(Hae wis HHaS AgHe at at$( >; &> -K!$>('>:0$ -adat apyt AlHTei-Wad UT -A-<aat gs Adu "ta daH" )ii( ):J( )5(;J।JOUR] Ue atgs aca ,STH B-TJ cana J fa Head fad) Fa Jan tH adst a Jae J-Set fade fa Ahr fagugs ast aet 3 ae Ca Ae fey fan agHed At faA AemMasTadHdd } fuss fea AS fed wet atst get de | Hed nS <Tas | 1961 ,:ੰ&0- :?ੱgdWHS ad nad-cl WdY-"AS"&J '>0> 40-<5&> *:;ਲ> *ਰ>?'>( )6(। fH murs fed JS 19 Hels Css - (i)alwulsadsi1961 ,WHA fFSagH ca ma?- (ii)alMHES Ad AAS1961 ,&J '>0> 40-<ae Sida Hl WHelaTdS UI Distal ado Ue )5(st A fea AH BH ad a AGH ¢ Ty fed ys daniWS| ,Bigi ¢ HaY fed SY alst WH Ho WS eal BA wad fea Algal qgHdd v gu feod ys 628 Hodctesyaistyes, YAYSHPSAH-caHatHHad, YS!] SHUTS HT629 Jt ad? & HS 2 Ja fed ne nuiwagarBot eet79-1978MAA @ fedu HBAS AS-UST ¢ Hee fess FEA BET mute ast get J mus } AZ de 3a HO" ATS MTBS fed fal HdgSd Al ast Hl FAH fed ford! fame1952avd Use can Yds }HELD : 1.1Hl taAAUA ue fed can ats ae Afeat aati G3 feats } agent GH uiguras wnaa Wash ct OH WHS HSTSSI ScG; 632-AI-631 [ .2 .1:>ਲ oc Added WASH ast Wet OTT1952SelHBAS [EIT MIT!79-1978Hi fan e slds Hat Gs fenta G can fed di fenttar at Have HT -1632-GI Yat Ya FSH atHHsd fafasqH can .yy .we ., (859 .Wd .ra .Te237 )1999 '$O -0K:> ast TPH | Hed Ya wie Sdleedd YSTH NTHES Ad afHHSd [156 )1986( ,al( ੰ ਲ>! (;J> ,102 .Nd .Aalst TdpH Hee Ya nile JoeSad YSTH MTHS aT afHHod101 )1977( ,WY .al (336 .Nd .al .} Je ad fest fap ).WI। .2feurs Hal a fegra fesaH can nad1961 ,&J '>0> 40-<a?ੱ '>0>?> -chyt Sy )WH(-40wad a Ur ,afys adsl shy Hei fagurgy adsl Hi<a&J !ੱਲ "fia day " )ii( ):J( )5(adel di fF wane J fa Hea fade fa Jan FH add w Jaeg J] otfia)c( )ii(YSld CJ ,adhd a ae fra FH adel J fa Ga a fae a fentast J fA SBSad es feat cffovasl d a Sadi es feat | Ubyd 2 Ae feg fig Henn ait ofa agHud S fta fineSet Ae! alst ud fuses AS cats fEH 3gi Addl ada de ad fest! mhAd HHS fedHand ,3 feat ATH Yag adel < '3 due a ads] 'HUH? Sd।/-000 ,60।G, H; 636-AI-635 [ 223 )aS( .Wd .al .YH156 )1985( ,3 TPH 4 dd ad fest! .1 .3wad A UTI -A0-<a (2feg HUHSadS )5(b2 Hedg feg Arghyt sour Bet faAge )fto ALT a at St।GI-636 [ .2 .3ulgS yreurs feHed Ul eds G3 SdH "HHd"630 HuUdiHetdeldudeH] 2006] Au.1 WAAL, '>0> 40-<a )+( )"HA(| UTSUTS WS UTA -40-<5ay foHHt.-&K?O ?ੱ )6( "HHI "dH ald} ,।-1636ra .YT .md- 33 GH UA Hane -40-<afea fds ast & "$( >;"at dis adel cd ws "daH "fia )5(,J >,& &J ?0$K ,OਲK!; J :J "aS "cana 3 fa।SyTo-:J-637 [ .4Shu U ads Acst Bel fhg| fa AH fagurds ast det J ave Gag Het fed fan])1-637 [ 310a THES UTS SY2001 fed deel fea get dde ng galeud < fal25a fiSaH caH dedH dud1987mre3/&O +J:ਲO9.3.1999। &J ::?ਲ2001WuUrsSsS1.31 .WdWSS Set fdstTS ws ,HaAlst HIeTASS ,TBNGHSS .WH ,wUsSads! Set HIS .Hidsd' WSS fds | dqeargeg Sel Jdih de,ਲ0>. &>: .?J .Hos dud ne a ,ated] .u .3aSe ."HA ,। MTS aI SHS! fest fant HT 0 .> *>ਲHels feg H .ra ,;J79-1978| TH MUS fed tHai e Hews et Heyfest ale JSCJ Jaz , alwulsadst f¥SaH cay ma?&O )fat fapyt c "Wa? " (1961 ,;ੱJ? alt Wad a Uri )5 (40baia ,feat HTH! BH G fa AgHd 2 gu fed YUuSs Jel daH we BieHe fed Sg Je mS eatGH 4 fea Haat agHuldi ¢ gu fed ys Jet JaH mS Srgi Set | | ] SHUTS Hy] | 631 Te ade } HS 2 da (Sg WS WAHT Ce fegu tet Una e Fete feS 1) मई 1, 2006 "salary" indicating a single deduction where the use of the word "aggregate" B was uncalled for. (637-C-DI 4. Only one limit is prescribed for deduction on account of salary whether paid to an employee in service or a retired employee in any one previous year. (637-D) CIVIL APPELLATE JURISDICTION: Civil Appeal No. 310 of2001. From the Judgment/Order dated 9.3.1999 of the High Court of Judicature at Bombay in Income Tax Reference No. 25of1987. WITH Civil Appeal No. 311 of2001. R. Murlidhar, S. Balakrishnan, Sujeeta Srivastava, Atul Y Chitale and Suchitra Atul Chitale for the Appellant. Harish Chandra, SWA Qadri, Mohit Choudhary and B.V. Balaram Das for the Respondent. The Judgment of the Court was delivered by RUMA PAL, J. The assessment year in question is 1978-79. The two questions which are to be answered in this appeal are: (0 Whether the appellant is liable to be taxed under the Income Tax Act, I 961 (referred to hereinafter as the "Act") in respect of the interest on doubtful advances credited to the interest suspense account? (iJ) Whether two separate limits apply for the purposes of computing disallowance under Section 40A (5) of the Act where an employee retires and ceases to be in employment during the previous year, so that one limit will apply in respect of the amounts and benefits received by him as an employee and another for the amounts and benefits received by him as a former employee. The High Court answered both the questions in favour of the Revenue and against the Assessee. MERCANTILE BANK LTD. BOMBAY'" COMMR. OF INCOME TAX BOMBAY [RUMA PAL,J.) 63} Being aggrieved the appellant has approached this Court. As far as the first question is concerned; the High Court answered it in the affirmative relying on the decision of this Court in State Bank of Travancore v. Commissioner of Income Tax[1]• In the decision of State Bank of Travancore v. Commissioner of Income Tax the minority opinion expressed by Tulzapurkar, J, was that the stickiness of advances or loans objectively B established to the satisfaction of the Taxing Authorities by furnishing a proper material, is sufficient to prevent the accrual of interest thereon as real income and would have the affect of rendering such income hypothetical. Therefore the interest cannot be brought to tax irrespective of the method of accounting followed, provided the assessee was able to establish to the C satisfaction of the Taxing Authority that the loans had in fact becomes sticky during the concerned year or years by producing proper material and that the assessee had invariably followed the practice of carrying the interest of such loans to interest suspense account instead of crediting the same to interest account or profit and loss account with the additional safeguard of offering the same for taxation if and when it was subsequently realized. D The majority view, however was that carrying certain amounts which had accrued as interest without treating it as a bad debt or irrecoverable interest but keeping it in suspense account would be repugnant to Section 36(1)(vii) read with Section 36 (2) of the Act. Where the mercantile system of E accounting was followed and loans had not been written off the amounts accrued on the loans were income assessable to tax. 631 musa & aaa J a feH wees U ede upton diff Ja ufys Hes a:,ੰ' ;J3 ol feg merry '3 SdH ade de fFH wees @ SAS 'amt add 3 fF nee 2 eH ,Hed Ya 'a CHS fed 'Hed da nile Bieéald YSH fEAAH CaA atHA(0 ':&ੱ$>Wid BeeddUSTH fSaH Can afHHodond! ug alst det we forest ge .p , '$O :%>*$ 'fea At fa fea Ces ANd UA ade cafhar wierd a AsAd Bet faguy saMHS MHC6 et gu fed BH 83 fens 2 ,m3 TEA Si a THES G aTwulad YetRe vl yste ucg| (FH Bet Sule eT augers ais ,fry Healus aga uudi de fa was fed Act HHTO ade MSHS AS Al ATS easmis SAH'S Us fed AH! age ct ane fenta HAYA us fg (aS Sh UB at USE| ast Ht St PUPSSIUdidest @ = fra A fa ay dant 4 fEH @ fFa uae aad At eu fens ,cu fed HH faat fenta 2 gu fed fearapat Jehu HSud feA & HAUA urs fog Suet nae ,)I( )vii(36&J '>0>¢ 3S Usl Tel Ug )2 (36¢ BS deal fHa Sula et eutgg yest et ,&O /K! :J। fed Hels fed 3 fed Sat Giant237 )1999 (Yat Ya YSTH afHASd-e HTHS Teg HSdd ddd < AHS mHfda Wess SB dig ,889 .Nd .al .fag7 .feHdcite & muSitinnt Hida wie Sdeead eT HHS GH HHS fed HES UT HBiIdS HS::J82-1981| aafpat €3 fenaWHS fed fuexs fea Asi SV agentsYa ,dH el <HSt Hatt Hl ,Bg WS SANS US fed Sl fSnitat fap Ht fala Jani et eAwl de a Hal Sal AllMASS S UTM fo BUT a fg Sdiat Hays By wisniA ¢ nS Hil EH S festa feT SIHiatt fapat Ht fot del Use Can Yds Sf6 fea Hdged Adt ast Ht fH fed1952mMasdd6fac fara Ft fa AAA urs fed BUS as ae Afedl aghnt G3 feora a agas JI .TR 102: ]19861 2 SCC 11 [156 )1986( HuUdiHetdeldudeH] 2006] Au.1 WAAL, 632 :ੰ->?(> (;J> ;JSt TEA § APES TU MSH'SS MHS fed HHS Sd als AST , Sita1978t!Hdadd Ao1952Ud TF ,fdpH! t Sd Hed da nig Sided a [101 )1977( , .rol ,]336 .Nd1984 ,MASI9c fea Jd HddSd wagey! UA atst fap Hft HddSd fed HUA ast fami Ht fa HHUA us fed AH1984ae1952 ,MASYd6c UldS Hdded af dual fed atsdea fagia fed Hdged fhdd Wa1978 ,fq etuR fat fapyt AT¢ Hdgsd sls1984$K ਲ>! ;K?O!J80-1979[sdurds Sd ufatoun| fedurds ulafout ATS Seu Set ead adi diug ffgHUW)? J fafed Ad atst fap Hdd Sd USTSHTS! Ud G'S de ad fest fapat At1978We MH, ad feat Tapyt ATI al Yo Ya @ HHS6fed MISS a feutd Ht fa fed HIS )Bud fds ae(adi ot die Ha!9mW1952MASYd1984 ,Wad et Urgi )1 (191Sids wlgatgnyt Sut urge HS | mess a fed J feed Hl fa Hee Ya nis Bleeald&O 1984a adi aes )Bug fes ae(tl Hdadd Y'd)1978Hdgsd 83fedtd Ads Vt Hat Sd Al wes TEA Uda’ G3 nid efunr farHl wees Hed Ya nile Bieead fed Uigest Mug ugie als ae fHe STS AlJHS Si HlWe facie — |Jat fas fa Aistel 2 Haus HdgEd § Saari Odi ats A Hae] ATSJ fa at Hdaed ay WA Jest fey agetsnt 2 wg Bel fan feqA Hane ct ,191 )pg.610 ,18*J0> ( dl TFA Get (EA Us fed HIS als Te HSBide HG 6 fea Wagct HdgSd1952MOA Soul AST OTeT HlfAH 2 sfos Hot aakat G3 fears & can fe0 Sel funtta aTHoel Hl | ufgS Hes GS Tel dade UT CHS ,d fa Hed Ya wie Bolesod Ut CHS FS mugs Al ,& Ya Fa FSH 2 HHS fed fEA weTSS 2 ue 2 CHS 2 Head WSs Hier wrest ae;J। Hddafesedatstes PayeHfPeaH-canattHeg, Ya)] SHUTS633 WTHES Ad AIHHS}d fd so CH ATS BAY -uRTs ast get de "40sYdd Al 3dIs6 ATdad feg acai Sd gS (1" , )aldylg qi UH 2 Bg we waHISY WUS WHS UP DISal "O'S AYUS fEH nee) e fan dd us fe0 fEH Oe CBs ay A det Wedge usted dedi (2))u(xxx xxx :J . )y(xxx xxx (3)xxx xxx xxx (4)xxx xxx xxx (5)fa HSiatags! )+( (5)fa HSiatags! )+( (i)aet Jugal 4 Aa at mfAu Sg GS fan AGH Ai Haat ATH & faH SauTg e336 fed Jet dait , (ii)xxx xxx xxx :+0feq fSgutgs HHT ):J (wWldd Uda qi a2 a ftar fat a ys ,¢ UxOt 2 US )P ( ੰ! , ,$K ?ੱ' ;J। xxx xxx xxx )(c (3) xxx (4) xxx The question again arose for consideration before a bench of three Judges in the case of UCO Bank v. Commissioner of Income Tax, (1999) 237 ITR 889, where the Court affirmed the minority view ofTulzapurkar J, in State F Bank of Travancore 's case. The assessment year in question in that case was 1981-82. The interest on loans the recovery of which was doubtful had not in fact been recovered by the assessee bank for the last three years and had been kept in a suspense account and had not been brought to the profit and loss account of the assessee because the amounts were not likely to be realized. The Court found that this method of accounting was in accordance G with established accounting practice. Additionally it was held that the Central Board of Direct Taxes had issued a circular on 6th October I952 stating that the interest on sticky loans which were entered in the suspense account ne~d I. (1986) 156 ITR 102: (1986) 2 sec 11. 632 SUPREME COURT REPORTS (2006] SUPP. I S.C.R. A not be included in the assessee's assessable income provided the Income Tax Officer was satisfied that there was no real probability of the loans being repaid. Although the 1952 circular was withdrawn in June 1978 in view of the decision of the Kerala High Court to the contrary in State Bank ofTravancore B v. Commissioner of Income Tax, (1977) 110 ITR 336, the principle was reintroduced by the Central Board of Direct Taxes by another Circular dated 9th October, 1984. The 1984 Circular clarified that up to the Assessment years 1978-79 the taxability of interest on doubtful debts credited to suspense account would be decided in the light of the Board's earlier Circular dated 6th C October, 1952 as the said Circular was withdrawn only in June, 1978. With effect from 1979-80 the new procedure prescribed under the 1984 circular would apply. The procedure prescribed is not relevant for our purposes. But it is clear that the circular issued in 1978 was effectively set aside and rendered ineffective. The Court in UCO Bank ·s case (supra) was of the view that these Circulars dated 6th October. 1952 and 9th October, 1984 were binding on the authorities under Section 119( I) of the Act. The Court was also of the view that the judges in State Bank of Travancore (supra) did not have the occasion to consider the 1984 circular and proceeded on the assumption that the 1978 circular was in force. The Court did not agree with the conclusion expressed E by the majority in State Bank of Travancore and said:-" "The relevant circulars of CBDT cannot be ignored. The question is not whether a circular can override or detract from the provisions of thi: Act: the question is whether the circular seeks to mitigate the rigour of a particular section for the benefit of the assessee in certain specified circumstances. So long as such a circular is in force it would be binding on the departmental authorities in view of the provisions of Section 119 to ensure a uniform and proper administration and application of the Income Tax Act". (para 18, pg.610) Therefore the assessment year in question in this appeal should have been dealt with by the Department in accordance with the 1952 Circular under which the interest on doubtful loans could not be brought to tax. The decision of the High Court on the first question, having been based on the decision in State Bank of Travancore must be held to be incom:ct in H view of the subsequent judgment of this Court in the case of UCO Bank v. Commissioner of Income Tax. ,fq adhd 2 HHS feg ,fg agp ge ugd 2 AYU fed )YH ( ੰ!-2 By )u ( ੰ! )(iees AS eage sigs fed BA Ut Sadi a finitefed HHS dda Hdd At BH 2 fA Bel UAfaq ten ,We Ha Argal adgHuldi 2 HHS feg ,asl d a!:ੱ , 634 He fea J fa Ae Ae agua ues AS vas Sadi Es feat Tsiot His ,By guy5at ad SIS aca a daeld a]- /000 ,5*Jdd Sa adgHyd Sadi fed A nAled due dt .mH .HAIHT Sa /- 000 ,60adhd aed Hears Jet J? )1985(1156al223 .Wd .2 HHS feg urgr3 Udfaat fa Teer | ' ):J( )5 (40badduldl ¢ Hetfed dideé af finite Bet GH 6 fea AgHed <A Hiatt Aret adel J nis fearaH eH CAS a Te A sasai § Ha_gdHe HfHa Ab 2 vied ASS SAS wfamatfest area! BH fit JS unest BAG fea Agar ,Ade wit AdHdd HeHas Je d ,adhe dt Hoa Aret oie’ J wis BA A ead Areal agHed! eH ast qe meteait[SdH'é fAH & Slds mila AH 4 fd}&O 0 "U feg "Arygalt adHul "+! "Sta adduldi"eH Ug ¢ fea TA At eH 4 fede yet tea ,Hawt arat cy| Wess S HS dH add fACAS 6 de ad fest fa acst a Hh fagurds ade Ue Cen a fuss AS ct mrad fHat &adhd tt Afast St & fonts fed dm aret adhe dl mess 6 fog fa Had FEA eSlS S$:;$ .(਼㰿 0>K&> )5 (40uacat at Hh faguigg ade feg fmsfg Sc Gepyl al Hadi! weTss Ss Udi&> )u( )5 (40uJersi frat yo Oo? ata fa fFH 9 afosulgS yreurs fed Teal BY Gul ef AH YeTsS atst get;J।- /000 ,72USTHYES aca at gig sy]y fanH 2 ugtgnt we sisi 2 as As aS Udd Al- otaG31 TEA sgi(>ਲ -< sfgs fH a Ades Mad SA Ue SBS CU OG )6 (40bHans ,mid ne Udd ve AYU fed acat ,BHadHdtdl 4 Jeu ¢ gga" G3 det Ysa! atst fam Hlgue 3d HHS Hil aS THs! a/-60,000| wees B Se) atat fa faa SH feurs Ast sd Sy?ੱ - BH 6 fal HHT ,HH faguds ada Sfus yey als J) Mae Ut OataS ual gel og )Te( ,)u( )5 (40u )YH( ):J( )5 (40ufea adést FH fan S Is Jan @ frag Set ats" fara Hioisifa fan feg a ,-?ੱ | Wee og St tedid Hi ta dad TFA ed$:;$ )WY( ):J( )5 (40usi HIsa No? HW Uri ,'fSduds AM ct gaya J add feaee Set ddd ai fan agHudl 4 BA dt dat$O SdsTSud [aA dd JaH oh wMetea 4 wmdIs Bal AS Sd HSS ad Veg"! fed feu"S HSTfrat Sof J Hae All wMUTaTgfed 4 Haut fa A fa Can SIMISS TS AGS TT YR SHY ,'$N0 $O ?'O0O :.0ੱ% ;J Hddafesedatstes PayeHfPeaH-canattHeg, Ya)] SHUTS635 Ty epy} Adlatd atst ATST | ,Bd featinnt 4 HBia sags Sel MSqS w3 Brsatdt At ,gle fon oe oad edGH 4 edd ateet He ,arftet<I। gy oe ode fEH sda oS wHfgHS A fa HaHSclulgsta G3) "$( >;"fae17diel ws Jd faetegS Ba HHS JS ,fads adel J faH feg USHSfend fo a semuatotUt&J *:0->: "Hryat adhd "HHladd "adHuidl "< Std UlHHladS )YH( ):J (u45ੱ;ੱ> 2 nied wmget J! fA fed fas fomr fa adcst a Ahr fagurgs ade Bel AYus fues A]e aHmd fHSt @ fea&J ::%$J ( ੰ ?O #> ;K?O!> "adHuldi"| WATS DB Tad! fa Udiond! )5 (40ufSdurdz ah fudi।< HY fed fHde a AIH A wi "$( >; "3TH OeyBdH| ,e algd Udd tl adst & AHS Adal Hl mS fed AH gue dt tka Hi "$( >; ":J।-/000 ,60mMuUisads! 2S Un de fees eal™4 wis ast J fa awa Tet ade } fIeHsSCai} duet gel dg Ut sda 4 edd J ws fea S fesse fag ,Sy Ula Are Oat J-gu fed <u "+! ">,& ( ੰ "WS "feg )YT( ):J( )WA (u40fal Urgl। feanytiinyt 2 fan fauts 2 AHgES fed aH chien a gers feat fam |Hat ge J fo Geet get ag| wag use ast get ge At 1 feats Hat at fEgrat UTgT?ੱ '>0>?> $:;$ acal apy Hei faguigsy ada! Hi-apy Sy )5 (40et a By Ug| 4 aSaaiJet ade wid Hdlag als ge feudide & Hela ais Hiet J Si fagugs alist AreHe! BH fest 2 mag 3 cud dedi fan 4 adel agHudi fgeted Jmeaningless.asHae J| Aas Te ade v feald WASH Had aet aH.;J:(12wi BH H|t age J weUES AS 2 uty fee HeHaS Jed ,'/- Rs.60,000JSUT] Ue ataat acat BI UhYST AGS BI Yaeld dedi we fgatugue |3 adhd|/- Rs.60,000a aIdS '$( >; '( ੰ :&ੱ$J oeat feat dd HH! eI eMHe Ads UT dated dell eHHyd fed ,Sy Gani Ht adat a Jautg dedi-Hista et ey , As far as the second question is concerned, Section 40A (5) in so far as it is relevant provided:- "40A. Expenses or payments not deductible in certain circumstances. (I) The provisions of this section shall have effect notwithstanding anything to the" contrary contained in any other provision of this Act relating to the computation of income under the head "Profits and gains of business or profession". (5) (a) Where the assessee (i) incurs any expenditure which results directly or indirectly in the payment of any salary to an employee or a former employee, or (ii) xxx xxx xxx then, subject to the provision of Clause (b ), so much of such expenditure or allowance as is in excess of the limit specified in respect thereof in Clause ( c) shall not be allowed as a deduction; xxx xxx xxx ( c) The limits referred to in clause (a) are the following, namely:- (i) in respect of the expenditure referred to in. sub-clause (i) of Clause (a), in the case of an employee, an amount calculated at the rate of G five thousand rupees for each month or part thereof comprised in the period of his employment in India during the previous year, and in the case of a former employee, being an individual who ceases or ceased to be the employee of the assessee during the previous year or any earlier previous year, sixty thousand rupees: The issue is - when an employee ceases to be in employment during the previous year, is the employer entitled to deduction at the rate of Rs. 5,000/- p.m. as long as the employee was in employment and again up to the limit of Rs. 60,000/- when the employee retires? :+0 ?J '>0> &J dis adel d "Stal da" )ii( ):J (&J '>0> )5 (40ea Bu Ug| fed PIAcd fa Hida fade fPa JaH Wt adsl BT YJadld Ud! 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Mud All UTSUTS WS By-&K?O ?ੱ )6 ('>0>->,& &J ?0$K &J ਼㰿0 0$ :J "HHT "due J6 fan Set mtg }| fH sgt ufget ures PIAGET J] SHUTS637 WS ;faq aUgne ge yugd we ga ) (iimW ) (i ੰ!>-eH Ys et By )s(fag gn ge ugd nea ga ) (iim= ) (i ੰ!>-2 By ):J (&O ੰ!40HAS )y(। ain e gu fed mito )b(Uddlaft ,faa adets 3 at fAHY feg Udy ait )y(। Byfed cedure ge sautg ¢ gu fed det Jt ude )Te ( ੰ!-< BY )+ (&O ੰ! )5 ('>0>-, +J: c gu fed WS Saud Ue gu fed had Yd UT aS ASEH UA Byfe fa WHI ):J( )5 ('>0>-efipat <} feaat dS ade J A fea feos adst 4 vane J fa "$( >;"m= "dda">,& &J ?0$K ,OਲK!; J :J। "middie" fH Bet wa Hae ¢ da fed CH HTS zt feeteugs CHS fed fes ae Age TH undade Ji ws Hae Ji fa Saud 2 aS Ast Set fhg| fFa Hh fegurgs ast Tet Jd sve OaHal fed fa AGH 4 Hi faH HSTHAS AH 4 tes ea ATS fed wet ast Tet Te fA MOA MUS a uiga sg G3 wrfamr J) uate urd aut wigsd Sd | 311at THES WUTS SY 2001 ?No.310at THES WUT2001'MHA sd!= Wifgpyt fast GEA | ?J .WA .HA mus aH nine 3a G3 wrfamr di ਡਿਸਕ:ਮ:-: mmUyest STH fed HHS Sq dt AHS J we fea fan dd GeH Sel fEASHTS Odi ats A AaST |Add Sel fEH 4 Sdatd fest Area | The Calcutta High Court in the case of Hindustan Motors Limited v. B Commissioner of Income Tax, ( 1985) 156 ITR 223 construed the provisions of Section 40A (5) (c) came to the conclusion that for the period that an employee remains in service he is to be treated as an employee and all payments made to him as an employee would be allowed as a deduction within the permissible monthly limit. After that period, when such an employee retires, he is to be C treated as a former employee and payments made to him as former employee again ought to be deductible within the permissible limit. The Court was of the view that any other construction of such section under which such an employee is treated only as "an employee" or as a "former employee" in the year in question would render one part or the other of the section nugatory. The Court rejected the submission on behalf of the Revenue that the status D of the employee as on the last date of the previous year should be taken into consideration for the purpose of fixing the limit of deductions. The Court said if this contention was to be accepted then the salary paid to the employee while he was in employment cannot be taken into account in determining the ceiling of allowable deduction under Section 40A (5). The Court referred to E Section 40A (5)(a) and noted that the first proviso thereunder provided a ceiling of Rs. 72,000/- on the perm