Bharucha, J.

1. We are concerned, in this reference under section 256(1) of the Income Tax Act, 1961, made at the instance of the Revenue, with the assessment years 1969-70 and 1970-71. The three questions referred read thus :

"(i) Whether, on the facts and in the circumstances of the case, the Tribunal ought to have held that cash reimbursement of medical expenses was a perquisite within the meaning of section 40(a)(v) of the Income Tax Act, 196

(ii) Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that reimbursement of tax paid by the employees does not come within the purview of section 40(a)(v) of the Income Tax Act, 196

(iii) Whether, on the facts and in the circumstances of the case, the Tribunal was justified in allowing deductions under sections 80L and 80M of the Income Tax Act, 1961, before setting off the business losses for the year in consideration against the gross total incom "

2. The first two questions can be considered together. Their phraseology indicates the relevant facts. The issue involved therein is covered by the decision of this court in CIT v. Indokem P. Ltd. : [1981]132ITR125(Bom) .

3. A Full Bench of the Kerala High Court in CIT v. Commonwealth Trust Ltd. : [1982]135ITR19(Ker) , was persuaded to take a different view. Basing himself upon this decision, Mr. Dhanuka, learned counsel for the Revenue, urged us to reconsider the decision taken in the case of Indokem P. Ltd. : [1981]132ITR125(Bom) .

4. The relevant provision is section 40(a)(v) of the Income Tax Act, 1961, as it then read, and it refers to "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....". This court in the case of Indokem P. Ltd. : [1981]132ITR125(Bom) , following the judgment of the Calcutta High Court in CIT v. Kanan Devan Hills Produce Co. Ltd. : [1979]119ITR431(Cal) , and of the Madras High Court in CIT v. Manjushree Plantations Ltd. : [1980] 125 ITR 150 [LQ/MadHC/1980/223] , held that a cash payment to an employee fell outside the scope of the provision.

5. The Full Bench of the Kerala High Court did not see any reason to emphasise the words "whether convertible into money or not" so as to give a restricted meaning to the term "benefit, amenity or perquisite". It held that these words meant that it was immaterial whether or not the benefit, amenity or perquisite could be converted into money and they could not qualify the whole range of benefits, amenities or perquisites.

6. In our view, the interpretation of the words "whether convertible into money or not" is at the heart of the controversy. Since money cannot be converted into money, it must be held that an allowance paid in cash does not fall within the ambit of the provision. We see no good reason, therefore, to suggest a reconsideration of this courts judgment in the case of Indokem Pvt. Ltd. : [1981]132ITR125(Bom) .

7. Our attention was drawn to the judgment of the Andhra Pradesh High Court in CIT v. Warner Hindustan Ltd. : [1984]145ITR24(AP) . In rejecting an application under section 256(2) of the Income Tax Act, 1961, in relation to a question concerning cash allowances, the Andhra Pradesh High Court noted that the Supreme Court had refused to grant special leave to appeal from the judgment of this court in a similar matter, the reference obviously being to the judgment in the case of Indokem Pvt. Ltd. : [1981]132ITR125(Bom) . The Andhra Pradesh judgment of CIT v. Warner Hindustan Ltd. : [1984]145ITR24(AP) also refers to a communication dated December 3, 1980, is produced before us. It clarifies that a cash allowance paid to an employee does fall in the category of a perquisite.

8. We must, accordingly, answer the first and second questions in favour of the assessee.

In regard to the third question, it must be noted that the assessee had incurred a loss of Rs. 13,78,523 in the assessment year 1969-70 and had earned an income aggregating to Rs. 4,31,687. Its total loss, therefore, was in the sum of Rs. 9,46,836. For the assessment year 1970-71, the assessee had incurred a loss of Rs. 10,22,795 and had earned an income aggregating to Rs. 5,47,592. Its total loss was, therefore, in the sum of Rs. 4,75,203.

9. The Income Tax Officer and the Appellate Assistant Commissioner had not allowed to the assessee the deductions of Rs. 500 and Rs. 1,000 available under section 80L of the Income Tax Act, 1961, in the two assessment years and of Rs. 33,475 in each of the two years under section 80M of the said Act. The Income Tax Appellate Tribunal, however, took the view that the lower authorities had been in error in not giving these deductions and they relied upon the judgments of the Kerala High Court in Indian Transformers Ltd. v. CIT : [1972]86ITR192(Ker) , and of the Mysore High Court in CIT v. Balanoor Tea and Rubber Co. Ltd. : [1974]93ITR115(KAR) .

10. To appreciate the contentions, it is necessary to set out the provisions of section 80A, sub-sections (1) and (2); section 80B, sub-section(5); section 80L and section 80M(1) of the Income Tax Act, 1961. They read thus :

"80A. (1) In computing the total income of an assessee, there shall be allowed from his gross total income, in accordance with and subject to the provisions of this Chapter, the deductions specified in sections 80C to 80U.

(2) The aggregate amount of the deductions under this Chapter shall not, in any case, exceed the gross total income of the assessee."

"80B. (5) In this Chapter -

gross total income means the total income computed in accordance with the provisions of this Act, before making any deduction under this Chapter or under section 280-O."

"80L. (1) Where the gross total income of an assessee includes any income by way of dividends from an Indian company or Indian companies, there shall, in accordance with and subject to the provisions of this section, be allowed, in computing the total income of the assessee, a deduction as specified hereunder, namely :-

(i) in a case where the amount of such dividends does not exceed five hundred rupees, the whole of such amount;

(ii) in any other case, five hundred rupees."

"80M. (1) Where the gross total income of an assessee being a company includes any income by way of dividends from a domestic company, there shall, in accordance with and subject to the provisions of this section, be allowed, in computing the total income of the assessee, a deduction from such income by way of dividends of an amount equal to - .....

(b) where the assessee is a domestic company -



It was submitted by Mr. Dhanuka, learned counsel for the Revenue that the decisions upon which the Tribunal had relied had been, in effect, overruled by the judgment of the Supreme Court in Cambay Electric supply Industrial Co. Ltd. v. CIT : [1978]113ITR84(SC) . This is not in dispute.

10. Mr. Dhanuka relied upon the judgments of the Calcutta High Court in CIT v. Bengal Assam Steamship Company Ltd. : [1985]155ITR26(Cal) , and CIT v. Empire Jute Co. Ltd. : [1986]161ITR556(Cal) , and of the Madras High Court in CIT v. Rambal (P.) Ltd. : [1988]169ITR50(Mad) .

It is necessary first to interpret the provisions aforesaid. They fall within Chapter VI-A. Sub-section (1) of section 80A of the Income Tax Act, 1961, empowers the taxing authorities, in computing the gross total income of an assessee, to allow the deductions specified in Chapter VI-A from the assessees gross total income. Sub-section (2) provides that the aggregate amount of the deductions under Chapter VI-A should not, in any case, exceed the gross total income of the assessee. The gross total income, defined by section 80B(5) of the said Act, is the total income computed under the provisions of the Act but before making bay deduction under Chapter VI-A or under section 280-O of the said Act. For the application of the provisions of the Chapter, therefore, the first inquiry that has to be made is whether the assessees gross total income includes any income by way of dividends. If it does, the next step to take is to compute the assessees gross total income. This is the total income computed under the Act but without the deductions under Chapter VI-A or section 280-O. Only if the gross total income is found to be a positive figure, can the deductions permissible under Chapter VI-A be given. The provisions of section 80A(2) so require. Consequently, the taxing authorities were not in error in not allowing the assessee the deductions under the provisions of sections 80L and 80M of the Income Tax Act, 1961, having regard to its negative income in the relevant years.

11. This, substantially, is the view that was taken by the Calcutta and Madras High Courts in the judgments aforementioned.

12. Mr. Dastur, learned counsel for the assessee, drew our attention to the phraseology of section 80M of the Income Tax Act, 1961. He stressed that the allowance thereunder was "a deduction from such income by way of dividends". These words, in his submission, meant that the deduction had to be made from the income by way of dividends and that it did not have to wait until the gross total income had been ascertained. They override the provisions of section 80A of the said Act.

It is clear from the provisions of section 80A(1) of the Income Tax Act, 1961, that the deductions under Chapter VI-A, which includes section 80-M of the said Act, are to be allowed from the assessees gross total income. This is necessary because section 80A(2) provides that the aggregate amount of the deductions under the Chapter shall not exceed the assessees gross total income. It is, therefore, not possible to accept Mr. Dasturs submission. The words upon which Mr. Dastur relies are used in the context of the computation of the deduction under section 80-M, the deduction being a percentage of the dividend income.

In the result, the third question must be answered in favour of the Revenue.

13. To sum up, the first question is answered in the negative and in favour of the assessee. The second question is answered in the affirmative and in favour of the assessee. The third question is answered in the negative and in favour of the Revenue.

14. There shall be no order as to costs.