B.K Mehta, J.:— In this reference, we are concerned with the ambit and scope of section 40(a)(v) and section 40(c) of the Income-tax Act, 1961, as were in force in the relevant assessment year 1969–70. The assessee is a limited company engaged in manufacturing cloth. The assessee-company in pursuance of the agreement of June 14, 1967, with its directors, S/Shri Indravadan Pranlal, Surendra Pranlal and Madhukant Pranlal, appointed them as the managing directors of the assessee-company in the first instance for a term not exceeding five years with effect from July 1, 1967. As per clause 5 of the said agreement, the assessee-company has, as and by way of remuneration, agreed to pay and provide to each of them, inter alia, a sum not exceeding ⅓rd of 10% on the net annual profits of the company or Rs. 2,000 per month as remuneration subject to certain conditions, and free use of car to be maintained by the company for their personal as well as business use of the company and also the expenses in respect of the telephones to be maintained at their respective residences. In the relevant assessment year under reference, the assessee-company paid remuneration of Rs. 50,000 in all to the said three directors. The assessee-company also, paid the expenses of cars and telephones provided for the said managing directors. The car expenses were Rs. 5,393, Rs. 6,335 and Rs. 7,604 respectively of the said directors. The telephone expenses amounted to Rs. 8,886 in the case of Indravadan Pranlal, Rs. 6,335 in the case of Surendra Pranlal and Rs. 8,308 in the case of Madhukant Pranlal. The total expenses both on account of ears and telephones were to the tune of Rs. 23,530. The Income-tax Officer considered these expenses as perquisites in excess of 1/5th of the remuneration payable to them treating them as employees of the company. He accordingly disallowed Rs. 5,552, Rs. 3,002 and Rs. 4,975 in respect of each of the said managing directors. The total amount thus disallowed amounted to Rs. 13,530. The Income-tax Officer, while examining the permissible deduction of the expenses in the course of the assessment proceedings of the assessee-company held that the provisions contained in section 40(a)(v) applied and not section 40(c) of the Income-tax Act, 1961.

2. The assessee being aggrieved with the aforesaid order of partial disallowance of the expenses carried the matter in appeal before the Appellate Assistant Commissioner who confirmed the order of the Income-tax Officer. The assessee, therefore, carried the matter in further appeal to the Appellate Tribunal which was of the opinion that on true construction and effect of section 40, the provisions contained in section 40(c) were applicable in cases of the expenses incurred on account of directors since that was the clause which specifically dealt with the type of the expenses incurred by the company in respect of its directors and section 40(a)(v) would not be attracted since the particular enactment of a statute should prevail over its general enactment.

3. In that view of the matter, the Tribunal allowed the appeal of the assessee-company. At the instance of the Commissioner of Income-tax, the following question has been referred to us for our opinion by the Appellate Tribunal:

“Whether, on the facts and in the circumstances of the case, the Tribunal was correct in law in holding that section 40(a)(v) was not applicable but section 40(c) of the Act was applicable to the facts of the case, though the managing directors are the employees of the assessee-company?

4. The next question which, therefore, arises for our opinion is: what is the true scope and ambit of section 40(a)(v) read with section 40(c) of the Income-tax Act, 1961 ? It is the common case that the three directors were the employees of the assessee-company. Before we deal with the contention urged on behalf of the revenue, we will set out the material portion of the said section which is relevant for purposes of this reference.

“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,—

(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, whichever is less:… …

(c) in the case of any company—

(i) any expenditure which results directly or indirectly in the provision of any remuneration or benefit or amenity to a director or to a person who has a substantial interest in the company or to a relative of the director or of such person, as the case may be,

(ii) any expenditure or allowance in respect of any assets of the company used by any person referred to in sub-clause (i) either wholly or partly for his own purposes or benefit,

if in the opinion of the Income-tax Officer any such expenditure or allowance as is mentioned in sub-clauses (i) and (ii) is excessive or unreasonable having regard to the legitimate business needs of the company and the benefit derived by or accruing to it therefrom.”

(iii) (Omitted by Finance Act, 1968, with effect from 1-4-1969).

5. On behalf of the revenue it has been contended that having regard to the legislative history of the provision contained in section 40(a)(v) and having regard to the different fields in which these two provisions, namely, sections 40(a)(v) and 40(c), operate under different circumstances and conditions, the Tribunal was clearly in error in viewing some conflict between the two provisions and holding that a particular enactment of a statute will prevail over the general enactment thereof. On behalf of the assessee this contention is sought to be repelled by urging that in so far as section 40 provides for non-deductible amounts in computing the income chargeable under the head “Profits and gains of business or profession”, a clear distinction is made in the case of company-assessees where expenses objected result directly or indirectly in the provision of any benefit or amenity or perquisite to a director or which result directly or indirectly in the provision of benefit, amenity or perquisite to an employee. In the submission of the learned advocate for the assessee, by the legislative changes brought about in clause (c) by the Finance Act, 1968, which deleted sub-clause (iii) of clause (cj and inserted sub-clause (v) to clause (a) in section 40, the distinction between an employee and a director of a company-assessee is not sought to be done away with by the said amendment.

6. We are of the opinion that the contentions urged on behalf of the assessee are well-founded for two significant reasons: in the first place, the distinction in the matter of deductibility of expenses made by a company in the case of directors and employees before the Finance Act of 1964, or thereafter continues to prevail because in the ultimate analysis the legislature was making different provisions about the amount of expenses which would not be deductible in computing the income chargeable under the head “Profits and gains of business or profession By the said section 40(c) it, inter alia, provided about the expenses laid out by a company-assessee which resulted directly or indirectly in the provision of any remuneration or benefit or amenity either to its directors or employees. Sub-clause (iii) of clause (c) of section 40 was first added by the Finance Act, 1963, with effect from 1st April, 1963, and it read as under:

“(iii) any expenditure which results directly or indirectly in the provision of any remuneration or benefit or amenity to an employee who is a citizen of India, to the extent such expenditure exceeds the amount calculated at the rate of five thousand rupees per month for any period of his employment after the 28th day of February, 1963.”

7. The following clause was substituted by the Finance Act, 1964, with effect from 1st April, 1964.

“(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.”

8. This sub-clause was omitted by the Finance Act, 1968, with effect from 1st April, 1969, and in its place sub-clause (v) as extracted above was inserted in clause (a) of section 40. In our opinion, therefore, this scheme in respect of non-deduction of expenses or allowances made by a company which resulted directly or indirectly in the provision of any remuneration or benefit or amenity to a director or to a person who is substantially interested in the company or to the relative of the director or of such person, as the case may be, on the one hand and the expenses which resulted directly or indirectly in the provision of any benefit or amenity or perquisite to an employee of a company remained intact. The contention urged on behalf of the revenue that non-deduction of such expenses in the case of a company employee has been by the amending Act of 1968, sought to be enlarged and made applicable in cases of the employees, of all other assessees, (sic) does not, in our opinion, answer the problem which has been posed before us in this reference. The question, as stated above, is: Is there any distinction in the conditions of deduction of expenses or allowances incurred by a company which may result in the provision of benefit or amenity to a director on the one hand and to an employee on the other in section 40 ? Before the amendment, the position appears to be clear to us that the legislature did make a distinction between the expenses incurred in cases of directors and the expenses incurred in cases of employees. If a person was a director in a company which incurred any expenditure resulting directly or indirectly in the provision of any benefit or amenity or perquisite to him, the deduction was permissible only if, having regard to the legitimate business needs of the company, and the benefit derived by it or accruing there from, the expenses were not excessive or unreasonable. On the other hand, in respect of the expenses incurred by the company-assessee for provision of benefit or amenity to its employees, the simple test whether it was in excess of a prescribed amount or not was provided. This position available before the amending Act of 1968 does not appear to have been altered when the new sub-clause (v) was inserted in clause (a) of section 40. It is no doubt true that clause (a) of section 40 applies to all the assessees, but we must not lose sight of the fact that various sub-clauses of clause (a) deal with different, broad heads of expenses and the conditions of deduction thereof qua each of the heads. Sub-clause (v) accordingly deals with the head of expenses for providing benefit, amenity or perquisite. For the same head, namely, benefit, amenity and perquisite, clause (c) of section 40 also prescribes conditions under which the expenses incurred on that head are entitled to be deducted. The contention of the revenue that clauses (a)(v) and (c) of section 40 operate in different fields does not appear’ to be well-founded, because they are dealing with the same broad head, namely, amenity, benefit and perquisite, though none the less they prescribe conditions in respect of different sub-heads, namely, the case of employees or directors. The view of the Tribunal that when there is a general enactment as well as a special enactment in respect of the same head in a statute, the particular enactment would override the general enactment cannot be assailed to be unreasonable or impossible and, therefore, wrong. In the second place, the construction canvassed by the revenue, apart from militating against the aforesaid rule of construction, would subject the expenses incurred by a company for providing benefit or amenity or perquisite to a director or employee to the twin scrutiny, namely, a prescribed ratio applicable to an employee and also the test of excessive and reasonable limits applicable to a director. The expenses laid out by a company for providing amenity or benefit to an ordinary director would, on this interpretation of the revenue, be subjected only to the later scrutiny mentioned above and would, therefore, put a director in a better position than a director-employee of a company for whose benefit or amenity or perquisite the company entails expenses. We think that such a result could not have been envisaged by Parliament. In that view of the matter, therefore, we answer the question referred to us in the affirmative and against the revenue. The Commissioner of Income-tax shall pay costs of this reference to the assessee.