2002 (2) TMI 74 - HC - Income Tax

Summary

Issues:
1. Treatment of expenses on maintenance of rent-free accommodation for directors under section 40A(5).
2. Treatment of perquisite value of servants provided by the company under section 40A(5).
3. Entitlement to depreciation on technical know-how capitalized.
4. Invocation of rule 3(c)(ii) of the Income-tax Rules for computing disallowance under section 40A(5).
5. Computation of relief under section 80J regarding borrowed capital exclusion and asset valuation.

Issue 1: Treatment of expenses on maintenance of rent-free accommodation for directors under section 40A(5):
The Tribunal had referred questions regarding the treatment of expenses on maintenance of rent-free accommodation provided to directors. The Kerala High Court's decision was initially relied upon, but later overruled by a Full Bench of the same court. The Supreme Court's observations in C.W.S. (India) Ltd. v. CIT clarified that expenses incurred on assets provided to employees are subject to the prescribed limit. The court ruled in favor of the Revenue, emphasizing that section 40(a)(v) includes assets owned by the assessee used by employees, bringing them under the ceiling.

Issue 2: Treatment of perquisite value of servants provided by the company under section 40A(5):
Regarding the deduction claimed for wages paid to servants, the assessing authority disallowed it, citing a circular for valuation of perquisites under section 17(2). However, the Tribunal upheld the claim based on a formula from a previous decision. The court clarified that the circular is not relevant for section 40A(5) as it determines the employer's expenses, not the value of perquisites for employees. The court referred to a similar view by the Delhi High Court and emphasized that actual expenses must be considered, ruling in favor of the Revenue.

Issue 3: Entitlement to depreciation on technical know-how capitalized:
The court referred to a previous judgment and upheld the assessee's entitlement to depreciation on technical know-how capitalized, following the decision in Porritts and Spencer (Asia) Ltd. v. CIT.

Issue 4: Invocation of rule 3(c)(ii) of the Income-tax Rules for computing disallowance under section 40A(5):
The question regarding the invocation of rule 3(c)(ii) of the Income-tax Rules for computing disallowance under section 40A(5) was not considered as it did not arise from the Tribunal's order.

Issue 5: Computation of relief under section 80J regarding borrowed capital exclusion and asset valuation:
The court followed a previous decision and ruled in favor of the Revenue regarding the computation of relief under section 80J, stating that borrowed capital should not be excluded, and the average value of assets and liabilities during the year should be adopted. The court answered the question accordingly.

In conclusion, the court addressed various issues related to income tax assessments, clarifying the treatment of expenses, perquisites, depreciation, and computation of relief under different sections of the Income-tax Act. The judgment provided detailed analysis and references to previous decisions to support the rulings made on each issue.