Sabyasachi Mukharji, J.:— In this reference arising out of the assessment orders for the assessment years 1973–74 and 1974–75, we are faced with a very short question. The assessee paid remuneration of Rs. 97,682 and Rs. 1,20,000, respectively, in the assessment years 1973–74 and 1974–75 to the managing director. The ITO disallowed Rs. 25,682 and Rs. 48,000, respectively, in the assessment years 1973–74 and 1974–75, being in excess of Rs. 72,000. On appeal, the AAC upheld the ITO's orders.

2. There was a further appeal before the Appellate Tribunal and it was contended before the Tribunal that the provisions of s. 40(c)(i) of the I.T Act, 1961, placed a limit on the allowance of remuneration to a director of Rs. 72,000, but it only applied to a case where the ITO came to the con-elusion that the payment of the remuneration to the director was excessive or unreasonable having regard to the legitimate business needs of the assessee. It is common ground that in this case there is no such finding by the ITO. In the premises, it was urged before the Tribunal on behalf of the assessee that the disallowance was unreasonable. On the other hand, the Tribunal was of the view, accepting the revenue's contention, that s. 40(c)(i) empowered an ITO to disallow the payment of remuneration paid to a director which was excessive and unreasonable, having regard to the legitimate business needs of the assessee. But apart from this, according to the Tribunal, it had also placed a limit on the allowable amount of remuneration and that was Rs. 72,000 for the whole year. In that view of the matter, the Tribunal upheld the order of the ITO. Upon these, the following question has been referred to this court under s. 256(1) of the I.T Act, 1961:

“Whether the Tribunal was correct in interpreting section 40(c)(i) of the Income-tax Act, 1961, as laying down an overall limit of Rs. 72,000 in respect of the amount to be allowed spent as remuneration and other expenses of a director?”

3. section 40(c) of the I.T Act, 1961, as it was in the relevant year, with which we are concerned, reads 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,

(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, so, however, that the deduction in respect of the aggregate of such expenditure and allowance in respect of any one person referred to in sub-clause (i) shall, in no case, exceed—

(A) where such expenditure or allowance relates to a period exceeding eleven months comprised in the previous year, the amount of seventy-two thousand rupees;

(B) where such expenditure or allowance relates to a period not exceeding eleven months comprised in the previous year, an amount calculated at the rate of six thousand rupees for each month or part thereof comprised in that period:

Provided that in a case where such person is also an employee of the company for any period comprised in the previous year, expenditure of the nature referred to in clauses (i), (ii), (iii) and (iv) of the second proviso to clause (a) of sub-section (5) of section 40A shall not be taken into account for the purposes of sub-clause (A) or sub-clause (B), as the case may be …….”

4. Now, in this case, it is common ground that the assessee is a company and it is also common ground that the payment had been made to a director. Therefore, there is no dispute that s. 40(c)(1). applies. The question, is, whether there are two limitations for disallowance, i.e, the ITO must first come to a conclusion that the expenditure of remuneration was excessive or unreasonable, having regard to the legitimate business needs of the company and even if it was not unreasonable the overall limit was Rs. 72,000.

5. Now, it may be mentioned that the expression “so, however, that the deduction in respect of the aggregate of such expenditure and allowance in respect of any one person referred to in sub-clause (i) shall, in no case, exceed—(A) where such expenditure or allowance relates to a period exceeding eleven months comprised in the previous year, the amount of seventy-two thousand rupees; (B) where such expenditure or allowance relates to a period not exceeding eleven months comprised in the previous year, an amount calculated at the rate of six thousand rupees for each month or part thereof comprised in that period: Provided that in a case where such person is also an employee of the company for any period comprised in the previous year, expenditure of the nature referred to in clauses (i), (ii), (iii) and (iv) of the second proviso to clause (a) of sub-section (5) of section 40A shall not be taken into account for the purposes of sub-clause (A) or sub-clause (B), as the case may be;”—this addition was inserted by s. 5 of the Finance Act (No. 2) of 1971, with effect from 1st April, 1972. The question, with which we are faced, is whether the expression “so, however,……” covers only the immediately preceding condition precedent, i.e, “the finding by the Income-tax Officer that the expenditure or allowance is considered to be excessive or unreasonable” or whether that expression covers the expenditure spoken of in cl. (c) of s. 40 of the Act. It is true that the expression is not happy.

6. On behalf of the assessee, it was contended that where two reasonable or plausible constructions were possible, then the one which was in favour of the assessee should be followed in preference to the other. He (counsel for assessee), accordingly, submitted that unless there was a finding that the expenditure or allowance in question was either excessive or unreasonable, having regard to the legitimate business needs of the company, on which it is common case that there is no such finding, no question of the further limitation of Rs. 72,000 arises and, according to him, this is a possible construction and as such it should be preferred to the construction advanced on behalf of the revenue. It is quite true that normally in a case where there are two constructions, plausible or possible, then the one which is in favour of the assessee should be preferred to the other. This principle is well settled. But it is also well settled that the provision of a fiscal statute should be strictly construed and it is also well settled that the different provisions of a particular statute should be harmoniously construed.

7. Our attention was drawn to the provisions of s. 40A(5). Section 40A deals with expenses or payments not deductible in certain circumstances and the material portion of s. 40A(5) of I.T Act, 1961, provides as follows:

“(5)(a) Where the assessee—

(i) incurs any expenditure which results directly or indirectly in the payment of any salary to an employee or a former employee, or

(ii) incurs any expenditure which results directly or indirectly in the provision of any perquisite (whether convertible into money or not) to an employee or incurs directly or indirectly any expenditure or is entitled to any allowance in respect of any assets of the assessee used by an employee either wholly or partly for his own purposes or benefit,

then, subject to the provisions of clause (b), so much of such expenditure or allowance as is in excess of the limit specified in respect thereof in clause (c) shall not be allowed as a deduction:

Provided that where the assessee is a company, so much of the aggregate of—

(a) the expenditure and allowance referred to in sub-clauses (i) and (ii) of this clause; and

(b) the expenditure and allowance referred to in sub-clauses (i) and (ii) of clause (c) of section 40,

in respect of an employee or a former employee, being a director or a person who has a substantial interest in the company or a relative of the director or of such person, as is in excess of the sum of seventy-two thousand rupees, shall in no case be allowed as a deduction:

Provided further that in computing the expenditure referred to in sub-clause (i) or the expenditure or allowance referred to in sub-clause (ii) of this clause or the aggregate referred to in the foregoing proviso, the following shall not be taken into account, namely:—

(i) the value of any travel concession or assistance referred to in clause (5) of section 10;

(ii) passage moneys or the value of any free or concessional passage referred to in sub-clause (i) of clause (6) of section 10;

(iii) any payment referred to in clause (iv) or clause (v) of sub-section (1) of section 36;

(iv) any expenditure referred to in clause (ix) of sub-section (1) of section 36.”

8. It may also be incidentally mentioned that this limitation was also inserted by s. 10 of the Finance (No. 2) Act, 1971, with effect from 1st April, 1972. Now if these two provisions are read harmoniously, then it is clear that the legislative intent was not to allow any expenditure or allowance in excess of Rs. 72,000. This view seems to be corroborated by the Notes on Clauses in the Finance (No. 2) Bill, 1971, which sought to introduce the amendment. Clause 9, which dealt with the amendment of s. 40 of the I.T Act, inter alia, provided as follows:

“Sub-clause (b) seeks to amend section 40(c) under which expenditure incurred by a company on the provision of any remuneration or benefit or amenity to directors, persons who have a substantial interest in the company and their relatives and the expenditure or allowance in respect of any assets of the company which are used by such persons for their own purposes or benefit is not allowed as a deduction to the extent such expenditure or allowance is, in the opinion of the Income-tax Officer, excessive or unreasonable. Under the amendment the deduction on account of such expenditure or allowance will be further subject to an overall ceiling limit of Rs. 72,000 in respect of any one director or a person who has a substantial interest in the company or a relative of a director or of such person.”

9. In that background of the matter, it appears to us that there were two conditions independently to be fulfilled, i.e, that the ITO might disallow if he found that the remuneration was excessive or unreasonable and further even in cases where he arrives at no such finding, if the expenditure or allowance exceeded Rs. 72,000, then no such expenditure or allowance was allowable. In that view of the matter, the Tribunal came to a correct conclusion and the question must be answered in the affirmative and in favour of the revenue. In the circumstances, the parties will pay and bear their own costs.

Sudhindra Mohan Guha, J.:— I agree.