The Judgment of the Court was delivered by

Dipak Kumar Sen, J.:— 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 s. 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.

3. 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 s. 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.

4. On an application of the CIT, West Bengal-II, Calcutta, under s. 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?”

5. 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?”

6. 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 s. 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……”

7. Section 40(c)(iii) was originally introduced by the Finance Act, 1963, and provided, inter alia, 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’……

(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……

(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:……”

8. Section 40(c)(iii) was amended by the Finance Act of 1964, whereafter it reads as follows:

“(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 concessional 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 subsection (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 sub section (1) of section 36 shall not be taken into account.

9. Provided further that nothing in this sub-clause shall apply to any expenditure which results directly or indirectly in the provision of any benefit or amenity or perquisite to an employee whose income chargeable under the head ‘Salaries’ is seven thousand five hundred rupees or less.

10. Explanation 1.—The provisions of this clause shall apply notwithstanding that any amount not to be allowed under this clause is included in the total income of any person referred to in sub-clause (i) or in sub-clause (iii).

11. Explanation 2.—In sub-clause (iii), the word ‘salary’ shall have the meaning assigned to it in clause (h) of rule 2 of Part A of the Fourth Schedule.”

12. Mr. Suhas Sen, learned counsel for the revenue, contended at the hearing that the object of s. 40(c) was to disallow certain items of expenditure incurred by companies on account of their employees which were otherwise allowable. Therefore, the fact that the said items had been included in the total income of the employee of the company and taxed as such had to be ignored in applying the section. Under Expln. 2 of the section, the expression “salary” was given the meaning as assigned to the expression in cl. (h) of r. 2 of Pt. A of the Fourth Schedule of the Act, which reads as follows:

“‘salary’ includes dearness allowance, if the terms of employment so provide, but excludes all other allowances and perquisites.”

13. Mr. Sen contended that deductions of only one-fifth of the amounts as stated in the above definition of salary, i.e, basic salary and dearness allowance, were allowable. Further deduction allowable were those specifically provided in s. 40(c)(iii), i.e, gratuity, travel concession or assistance, provident fund, etc. All other expenditure, according to Mr. Sen, would fall within the categories respectively of “benefit” or “amenity” or “perquisite” and would be excluded. Mr. Sen contended further that the said categories were not confined to benefits or amenities or perquisites in kind. The proviso to the section dealt with cash payments like gratuity, etc. If “benefit” or “amenity” or “perquisite” as appearing in the section was given a restricted meaning and were confined to benefits in kind then the proviso would be redundant.

14. Mr. Sen next contended that the phrase “whether convertible into money or not” in the section related only to “perquisites” and did not relate to the items “benefit” or “amenity”. He submitted that the meaning of the section would be quite clear if the governing phrase of the section, i.e, “any expenditure incurred which results directly or indirectly in the provision of any benefit, amenity or perquisite” was kept in view. The section had to be looked at primarily in the context of expenditure incurred by a company.

15. Mr. Sen also contended that in legal parlance the word “benefit” commonly included cash benefits as also benefits in kind. He cited examples of money paid to an employee for the appointment of a gardener or as entertainment expenses or for the expenses of a motor car which would certainly fall within the definition of a benefit though they reached the hands of the employees concerned in the form of cash. Mr. Sen submitted that the courts in India have always construed benefits to include benefits in cash as well as in kind. He cited a decision of the Madras High Court in Board of Directors of the South Arcot Electricity Distribution Co. Ltd. v. K. Mohamed Khan, [1963] 23 FJR 128 : AIR 1963 Mad 192, where the expression “benefit” occurring in the Industrial Disputes Act, 1947, was construed by a Division Bench of the High Court and was held to include monetary benefits. Mr. Sen also cited an English decision in the case of Attorney-General v. Wood, [1897] 2 QB 102 : 1 EDC 107 (QB), where it was held that the expression “benefit” has a wide scope. Lastly, Mr. Sen cited an unreported decision of this court in Income-tax Reference No. 221 of 1974 intituled Eastern Scales (P.) Ltd. v. Commissioner Of Income-Tax, West Bengal-I (since reported in [1979] 117 ITR 477 (Cal)), where a Division Bench of this court construed s. 40(c) of the I.T Act, 1961. “According to Mr. Sen, this decision supported the contentions of the revenue in the instant case.

16. Dr. Debi Pal, learned counsel for the assessee, contended on the other hand that, on a proper construction of s. 40 of the Act, keeping in view the changes introduced therein from time to time, it would be clearly established that the items “benefit or amenity or perquisite” referred to in the said section meant benefits or amenities or perquisites in kind and did not include direct cash payments to the employee.

17. He submitted that by the Finance Act, 1964, the word “remuneration” in cl. (c)(iii) of the said s. 40 was specifically deleted and the expression “whether convertible into money or not” was introduced after the words “any benefit, amenity or perquisite” in the said sub-section. The expression “remuneration” was, however, retained in cl. (c)(i) of s. 40. In view of the above Dr. Pal submitted that the clear intention of the Legislature was to exclude cash allowances from the ambit of the expression “benefit, amenity or perquisite “in the, said cl. (c)(iii). The use of the expression “whether convertible into money or not” would be redundant if the defined categories included cash payments.

18. Dr. Pal next submitted that the contentions of the revenue that the expression “whether convertible into money or not” relates only to the item “perquisite” did not stand scrutiny. On such a construction, expenditure incurred for amenities or benefits not convertible into money would not at all come within the ambit of the section and thus defeat its purpose and object.

19. Dr. Pal further submitted that the contention of the revenue that the proviso to cl. (c)(iii) of s. 40 would be redundant if a restricted meaning was given to the expression “benefit” or “amenity” or “perquisite” was also untenable. The said proviso referred to benefits which were not included in the computation of the total income of an employee and came under a special category. Dr. Pal next contended that the decision of the Madras High Court in South Arcot Electricity Distribution Co. Ltd. v. K. Mohamed Khan, [1963] 23 FJR 128 : AIR 1963 Mad 192, did not advance the case of the revenue at all as the High Court in that case was concerned with the construction of s. 33C(2) of the Industrial Disputes Act, 1947. The section provided, inter alia, that where a workman was entitled to receive any benefit, which was capable of being computed in terms of money, the same should be computed under the relevant rules framed under the: statute by the prescribed court and may be recovered by the Government under the statute. In construing the said section, it was held that the expression “benefit” would include all benefits, including benefit by way of cash payments. Dr. Pal submitted that, in the instant case, the statute concerned was materially different and the expression “benefit” had to be construed in contradistinction to the expression “remuneration”.

20. The decision in Eastern Scales (P.) Ltd., [1979] 117 ITR 477 (Cal), according to Dr. Pal, did not apply in the facts and circumstances of the instant case inasmuch as s. 40(c)(ii) was neither considered nor construed by the court at all in that case.

21. In our view, in their ordinary meaning, the words which results directly or indirectly in the provision of any benefit or amenity or perquisite whether convertible into money or not “in cl. (c)(iii) of s. 40 excludes cash paid directly to an employee as there is no question of convertibility to money where cash would be paid. This interpretation is reinforced by the fact that originally the said sub-section contained the expression “remuneration” which was specifically excluded by the amendment introduced in 1964 which also introduced the clause “whether convertible into money or not”.

22. In sub-cl. (i) of the said cl. (c) the expression “remuneration” was retained along with the other expressions “benefit” and “amenity” even after the amendment. This would show that the Legislature had in view the distinction between the said expressions and yet chose to delete the expression “remuneration” from the said cl. (iii).

23. The phrase “whether convertible into money or not” in our opinion does not govern only the expression “perquisite”. The words in the section are “any benefit or amenity or perquisite”. If the phrase “whether convertible into money or not” was intended to govern only the word “perquisite” then the correct grammatical form would have been “any benefit or amenity or any perquisite, whether convertible into money or not”.

24. Even otherwise, if the limited interpretation is given to the phrase, as suggested by the revenue, there would be scope for a company to incur diverse expenditure for providing benefits or amenities to an employee and claim the same to be deductible. This does not appear to be the scheme of the section.

25. It appears to us that the only cash payments which the said sub-section clearly contemplates are sums “paid by the company in respect of any obligation which but for such payment would have been payable by such employee”. Such payments would not generally be made directly to the employees in cash to be spent by the latter in future as and when they might decide. Where the employee concerned has already obtained some advantage or benefit for which payment is required, obligation to pay has been incurred by the employee and the company makes the payment to meet the obligalion, it is only in such a case the payments would come within the mischief of the section. Expenditure incurred by the company in making such payments would indirectly result in the provision of a benefit to the employee convertible in terms of money. As suggested on behalf of the revenue money paid for a gardener or money paid for entertainment expenses of the employee are not cash benefits but payments made for obligations incurred by the employee and are benefits in kind convertible into cash.

26. The proviso to the said sub-section refers, inter alia, to payments by way of gratuity, for the value of travel concession or free or concessional passage, for provident fund or expenditure for family planning. It is to be noted that gratuity is generally paid to an employee after or at the point his employment comes to an end, and the employee is no longer paid any salary. Expenditure for family planning and provident fund are also usually not paid to the employed direct in cash but such expenditure results in a benefit to the employee. Payments on account of travel concession or free: or concessional passage are not cash benefits in kind.

27. The decision in South Arcot Electricity Distribution Co. Ltd. v. K. Mohamed Khan, [1963] 23 FJR 128 : AIR 1963 Mad 192, in our view, does not advance the case of the revenue. It would be inappropriate to draw inspiration from other statutes for interpretation of similar expression or words in another statute on a different subject. The law as stated in Maxwell on the Interpretation of Statutes, 12th edn., page 68, is as follows;

“But it is not uncommon for the same word or phrase to have different meanings in different statutes. ‘Market value’/for example, when used in a provision of the Crown Proceedings Act, 1947, dealing with the loss of a registered postal package is not used in the sense in which the term appears in the Sale of Goods Act, 1893. The word ‘possession’ is so general that its meaning must always depend on the context in which it is used, and considering Acts which may be in pari materia will be of little assistance.”

28. The unreported decision of this court in Eastern Scales (P.) Ltd. (since reported in [1979] 117 ITR 477 (Cal)) is also of little relevance. The question involved in that reference is not identical with the question before us. The court in that case was not called upon to construe s. 40(c)(iii) but was specifically concerned with s. 40(c)(i). For the above reasons, the question referred in respect of the assessment year 1966–67 is answered in the affirmative and in favour of the assessee.

29. On the question referred to in respect of the assessment year 1967–68 we would like to add that the deduction claimed for transport allowance is covered by s. 40(c)(iii) itself. Accordingly, and also for the reasons stated above, we answer the said question also in the affirmative and in favour of the assessee. In the facts and circumstances, there will be no order as to costs.

C.K Banerji, J.:— I agree.