Law: Income Tax Act, 1961

Section: 40,40(c),40A(5),37

Income-tax--Business expenditure---Company--Ceiling on expenditure---Expenditure resulting in benefit, remuneration or amenity to employee---Finding that Director was also an employee---Proviso to S.40A(5) would apply--­Contribution to provident fund and pension fund---Not to be taken into account in computing ceiling under S.40(c)---Indian Income Tax Act, 1961. (b) Income-tax-- --Business expenditure---Ceiling on expenditure---Expenditure resulting in remuneration to employee---One-time payment of amenity or remuneration to employee---Not to be taken sting ceiling---Indian Income Tax Act, 1961, S.40(c). (c) Income-tax-- ----Business expenditure---Ceiling on expenditure---Expenditure resulting in benefit, amenity or remuneration to employee---Insurance premia---Insured amount payable in event of death of employee while in service---Insurance was akin to accident insurance---Insurance premia not to be taken into account in computing ceiling---Indian Income Tax Act, 1961, S.40(c). (d) Income-tax-- ----Business expenditure---Gratuity---Amalgamation of companies--­Amalgamation agreement stipulating that amalgamated company would take over employees of amalgamating company---Gratuity paid to employees who were taken over---Deductible--Indian Income Tax Act, 1961, S.37. Section 40(c) of the Income Tax Act, 1961, would not take within its ambit one-time payments like payment of gratuity: Though the gratuity is regarded as salary for the purposes of section 17 of the Act for the purpose of assessment of the same in the hands of the employee who is in receipt of the gratuity, the said amount of gratuity cannot be regarded as remuneration, benefit or amenity to the director within the meaning of section 40(c). The payment of gratuity which is not relatable to a particular year of service, which would be payable on the completion of continuous years of service and which is not a periodic payment, cannot be regarded as falling within the scope of section 40(c) of the Act warranting the disallowance under the said provision. CIT v. Colgate Palmolive (India) (Pvt.) Ltd. (1994) 210 ITR 770 (Bom.); CIT v. Century Spinning and Manufacturing Co. Ltd. (1994) 210 ITR 783 (Bom.)…

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