C. W. S. India LTD. vs Commissioner Of Income Tax

Judicial Analysis Court Copy Headnote Facts Arguments Court observation

1994 Supreme(SC) 300

SUPREME COURT OF INDIA
(BEFORE B.P. JEEVAN REDDY AND B.L. HANSARIA, JJ.)
C.W.S. (INDIA) LIMITED
Versus
COMMISSIONER OF INCOME TAX
Civil Appeal Nos. 677-82 of 1987{From the Judgment and Order dated 13-9-1985 of the Kerala High Court in I.T.R. Nos. 55-60 of 1982} with C.A. Nos. 493-98 of 1984, 487 of 1992, 5018-21 of 1991 and 4614-16 of 1993{From the Judgment and Order dated 2-6-1981, 11-9-1991, 7-12-1989 and 27-1-1989 of the Kerala High Court in I.T.R. Nos. 76, 79 to 82 of 1978, 44 of 1979, O.P. Nos. 9261-62, 9329-34 of 1989 and I.T.R. Nos. 376-77 of 1985 and O.P. No. 3373 of 1988-S},
decided on March 1, 1994
Advocates appeared
G.B. Pai and R.F. Nariman, Senior Advocates (Ms A.K. Verma, D.N. Misra, M/s J.B.D. & Co., S. Balakrishnan, M.K.D. Namboodiry, K.J. John and Joseph Joy, Advocates, with them) for the Appellant;
K.N. Shukla, Senior Advocate (Dr K.P. Bhatnagar, T.V. Ratnam and Bishnu Prasad, Advocates, with him) for the Respondent.

Advocates:
A.K.VERMA, BISHNU PRASAD, D.N.Mishra, G.B.PAI, J.B.DADACHAN, JOSEPH JOY, K.J.JOHN, K.N.Shukla, K.P.Bhatnagar, M.K.D.NAMBUDIRY, R.F.NARIMAN, S.BALAKRISHNAN, T.V.RATNAM

Headnote:
Income Tax Act - Section 40(a)(v) - Finance Act, 1964 - Section 40(c)(iii) - Employment - Gratuity - Any expenditure incurred after which results directly or indirectly in provision of any benefit or amenity or perquisite, whether convertible into money or not, to an employee (including any sum paid by company in respect of any obligation which but for such payment would have been payable by such employee), to extent such expenditure exceeds one-fifth of the amount of salary payable to employee for any period of his employment after aforesaid date - Provided that in computing aforesaid expenditure any payment by way of gratuity or value of any travel concession or assistance referred - Whether convertible into money or not, to an employee (including any sum paid by assessee in respect of any obligation which, but for such payment, would have been payable by such employee) or any expenditure or allowance in respect of any assets of assessee used by such employee either wholly or partly for his own purposes or benefit, to extent such expenditure or allowance exceeds one fifth of amount of salary payable to employee, or an amount calculated at rate of one thousand rupees for each month or part thereof comprised in period of his employment during previous year – Held, Where language of statute, in its ordinary meaning and grammatical construction, leads to a manifest contradiction of apparent purpose of enactment, or to some inconvenience or absurdity which can hardly have been intended, a construction may be put upon it which modifies meaning of the words and even structure of the sentence - This may be done by departing from rules of grammar, by giving an unusual meaning to particular words, or by rejecting them altogether, on ground that legislature could not possibly have intended what its words signify, and that modifications made are mere corrections of careless language and really give true meaning - Counsel says that those matters are still pending before this Court - There is no room for such controversy in light of language used in Section 40-A(5), appeals are dismissed to extent of first question - So far as the second question is concerned, appeals shall subsist and shall be heard along with Civil Appeal No. 816 of 1988 {Industrial Chemicals v. CIT), which appeal Court are told involves a question identical to second question arising in these appeals - For above reasons, all appeals except Civil Appeal Nos. 5018-21 of 1991 are dismissed - Civil Appeal Nos. 5018-21 of 1991 are dismissed

Judgment

B.P. JEEVAN REDDY, J.-

Civil Appeal Nos. 493-98 of 1984

1. A common question arises in this batch of appeals. It pertains to the interpretation of Section 40(a)(v) as well as Section 40-A(5) of the Income Tax Act. Up to 31-3-1972, Section 40(a)(v) was in force and from 1-4-1972, Section40-A(5) came into force in its place. Both the provisions were substantially similar. Indeed, Section 40(a)(v) was preceded by Section 40(c)(iii) which was, of course, applicable only to companies and not to other assessees.

2. Section 40(c)(iii) introduced by Finance Act, 1973 with effect from 1-4-1963, as substituted by Finance Act, 1964, read as follows:

"40. Amounts not deductible.-Notwithstanding anything to the contrary in Sections 30 to 39, the following amounts shall not be deducted in computing the income chargeable under the head profits and gains of business or profession-

(iii) any expenditure incurred after the 29th day of February, 1964, which results directly or indirectly in the provision of any benefit or amenity or perquisite, whether convertible into money or not, to an employee (including any sum paid by the company in respect of any obligation which but for such payment would have been payable by such employee), to the extent such expenditure exceeds one-fifth of the amount of salary payable to the employee for any period of his employment after the aforesaid date: Provided that in computing the aforesaid expenditure any payment by way of gratuity or the value of any travel concession or assistance referred to in clause (5) of Section 10 or passage moneys or the value of any free or confessional passage referred to in sub-clause (i) or any payment of tax referred to in sub-clause (vii) of clause (6) of that section or any sum referred to in clause (vii) of sub-section (1) of Section 17 or in clause (v) of sub-section (2) of that section or the amount of any compensation referred to in clause (i) or any payment referred to in clause (ii) of sub-section (3) of that section or any payment referred to in clause (iv) or clause (v) or any expenditure referred to in clause (ix) of subsection (1) of Section 36 shall not be taken into account."

3. By Finance Act, 1968, sub-clause (iii) in clause (c) of Section 40 was deleted and in its place sub-clause (v) was introduced in clause (a) of Section 40. As introduced by the said Finance Act, the sub-clause read as follows:

(a) in the case of any assessee-

(v) any expenditure which results directly or indirectly in the provision of any benefit or amenity or perquisite, whether convertible into money or not, to an employee (including any sum paid by the assessee in respect of any obligation which, but for such payment, would have been payable by such employee) or any expenditure or allowance in respect of any assets of the assessee used by such employee either wholly or partly for his own purposes or benefit, to the extent such expenditure or allowance exceeds one fifth of the amount of salary payable to the employee, or an amount calculated at the rate of one thousand rupees for each month or part thereof comprised in the period of his employment during the previous year, which ever is less." (emphasis supplied) [Provisos (1) and (2) and Explanations (1) and (2) - omitted as unnecessary.]

4. This sub-clause is applicable to all assessees including companies. By virtue of the first proviso, this clause does not apply where the income chargeable under the head salaries of the employee concerned is Rs 7500 or less. Explanation (II) says that the word salary in this clause shall have the meaning assigned to it in Rule 2(h) of Part A of the IVth Schedule to the Act.

5. With effect from 1-4-1972, Section 40-A(5) was introduced in substituti

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