The main legal point established in the judgment is the interpretation and applicability of Section 40(c) of the Income Tax Act to guarantee commission and the allowance of expenses related to a building used as residential accommodation.

( 1 ) THE Revenue is before us in the light of the following questions of law framed by the Tribunal in the light of the order of the Tribunal passed in ITA No. 2020, 2021 and 2022/1990: 1. Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the guarantee commission paid to Sr. Vijay Mallya, the Chairman/director of the company, was not covered by the provisions of Section 40 (c) of the Income-tax Act, 1961 as it then existed?

( 2 ) WHETHER, on the facts and in the circumstances of the case, the Tribunal was right in law in deleting the disallowance of the amounts of depreciation, insurance premium rent on furniture relating to the residential accommodation 'niladri' on the ground that in as much as the expenses were not allowable specifically Under Section 37 (1) of the Income-tax Act, the provisions of section 37 (4) would not apply thereto?

( 3 ) WHETHER on the facts and in the circumstances of the case, the Tribunal was right in holding that expenses relating to the building 'niladri' at Bombay were allowable as expenses incurred for the purpose of the business of the assessee, even though it had been found out on inspection that the said premises was being used as residential accommodation of Chairman of the company? 2. Sr. Vijay Mallya, Chairman and Director of M/s. Mcdowell and Co. Ltd. , Bangalore was paid guarantee commission at the rate of 1% of the amount of loan on guarantee furnished by him in his personal capacity against the loans taken by the assessee-company from various concerns for its business purpose. The amount of guarantee commission was considered as a remuneration, benefit or amenity accruing to the Chairman/director for purposes of limiting the total amount of such benefits in accordance with the provisions of Section 40 (c), as it existed at the relevant time. The assessing officer did not accept the contention of the assessee and passed an adverse order. Aggrieved by the same, an unsuccessful appeal was filed. Thereafter, the matter was taken to the Tribunal by the assessee by way of appeals. The Tribunal has chosen to hold in favour of the assessee. In the light of the order of the Tribunal, the Department sought for a reference of 3 questions of law. Those questions have already extracted in the earlier portion of our order. The tribunal accepted the application and referred the questions of law in these three references. Facts are same in all these references and hence, we pass a common order. 3. From the material on record, it is seen that the respondent-assessee contended that the guarantee commission is not to be a subject to any disallowance Under Section 40 (c) of the Act. The same was not accepted both by the assessing officer as well as by the appellate authority. The Tribunal has accepted the same in the light of the Judgment of the Calcutta High Court reported in 178 ITR 649. According to the Tribunal, the said payment of commission would not fall within Section 40 (c) of the Act.

( 4 ) HEARD the learned Counsel for the parties and perused the material placed on record.

( 5 ) AT this stage, we have to notice that in somewhat similar circumstances, a Division Bench of this Court in ITRC No. 136/1994 dated 25. 3. 1996 has chosen to consider this very issue and this court has also noticed the Judgment as referred to in the order of the Tribunal. After referring to the facts and in the light of the Judgment of the Supreme Court, the Division Bench has chosen to hold as under:

The precise question as to the nature of the commission paid came up for consideration before the Supreme Court in Commissioner of Income Tax v. Indian Engineering and Commercial corporation (P) Ltd. 201 ITR 723. The Supreme Court, on examination of the matter, was of the view that any payment of cash amount by way of commission on sales directly to an employee could not be said to fall within that expression, where an assessee incurs any expendit