CALCUTTA HIGH COURT

                                        Commissioner of Income Tax

                                                         Vs

                                 Kanan Devan Hills Produce Company Ltd

                                             (Dipak Kumar Sen, J.)

                                                   05.07.1978

                                                 JUDGEMENT

Dipak Kumar Sen, J.

( 1. ) THE facts found and/or admitted in these proceedings are shortly as follows: M/s. Kanan
Devan Hills Produce Company Ltd., Calcutta, the assessee, has been carrying on business in
cultivation, manufacture and sale of tea. In the assessment years 1966-67 and 1967-68, the
corresponding previous years being the calendar years ending on 30th November of 1965 and
1966, respectively, the assessee claimed deduction, inter alia, of amounts paid as " overseas
allowance ", " managing allowance ", " devaluation allowance " and " transport allowance " to
some of its employees, in the computation of its business profits and income. It was contended
that these items did not represent any benefit or amenity or perquisite within the meaning of
Section 40(c)(iii) of the I.T. Act, 1961, as it stood at the relevant time and were fully deductible.

( 2. ) THE ITO rejected the claim of the assessee and added back 40% of the amounts
claimed. Being aggrieved by the additions the assessee preferred appeals therefrom. The AAC
accepted the contentions of the assessee and held that on a proper construction of Section
40(c)(iii) the allowance in question paid directly to the employees in cash did not come within
the ambit of the expressions " benefit or amenity or perquisite " as appearing in the said section.
The appeals of the assessee were allowed and the additions were deleted. The revenue went up
on further appeal to the Income-tax Appellate Tribunal. The Tribunal also accepted the
contention of the assessee, upheld the orders of the AAC and dismissed the appeals of the
revenue.
( 3. ) ON an application of the CIT, West Bengal-II, Calcutta, under Section 256(1) of the I.T.
Act, 1961, the Tribunal has drawn up a statement of case and has referred the following
questions to this court for its opinion as questions of law arising out of its order: Assessment year
1966-67: " Whether, on the facts and in the circumstances of the case, the Tribunal was right in
holding that 'overseas allowance ' and ' managing allowance ' did not fall within the expressions '
benefit',' amenity' or ' perquisite' within the meaning of Section 40(c)(iii) of the Income-tax Act,
1961, and in directing accordingly the allowance of Rs. 62,700 for the assessment year 1966-67,
which had been disallowed by the Income-tax Officer ? " Assessment year 1967-68: " Whether,
on the facts and in the circumstances of the case, the Tribunal was right in holding that overseas
allowance, managing allowance, devaluation allowance and transport allowance did not fall
within the expression,' benefit', ' amenity' or ' perquisite' within the meaning of Section 40(c)(iii)
of the Income-tax Act, 1961, and in directing accordingly the allowance of Rs. 4,13,811 for the
assessment year 1967-68, which had been disallowed by the Income-tax Officer ? " To appreciate
the controversy in this reference it is necessary to keep in view the relevant sections. Salary paid
by a company to its employees are normally allowed in computation of its business income
under Section 37 of the I.T. Act, 1961, which reads, inter alia, as follows: "37. (1) Any
expenditure (not being expenditure of the nature described in sections 30 to 36 and not being in
the nature of capital expenditure or personal expenses of the assessee) laid out or expended
wholly and exclusively for the purposes of the business or profession...... " ;