1998 (4) TMI 87 - HC - Income Tax

Summary

Issues Involved:
1. Validity of reopening assessments under section 147(a).
2. Inclusion of specific expenditures (property tax, electricity charges, depreciation, repairs) in the amount disallowable under section 40A(5).

Issue-wise Detailed Analysis:

1. Validity of Reopening Assessments under Section 147(a):
The assessee filed returns for the assessment years 1974-75 and 1975-76, declaring incomes of Rs. 6,98,100 and Rs. 6,69,440, respectively. The Income-tax Officer (ITO) completed the original assessments based on the information provided by the assessee. Later, the ITO discovered that the assessee had incurred certain expenditures on a property occupied by its deputy chairman, which were not fully disclosed. These expenditures included property tax, electricity charges, depreciation, and repairs totaling Rs. 79,725 for 1974-75 and Rs. 83,718 for 1975-76. The ITO concluded that the assessee had not furnished full and true particulars of its income, leading to the reopening of assessments under section 147(a) and subsequent additions to the assessee's total income for the respective years.

The Commissioner of Income-tax (Appeals) accepted the assessee's objection regarding the reopening of assessments, but the Income-tax Appellate Tribunal (ITAT) upheld the ITO's decision, stating that the assessee had not disclosed full and true particulars. The High Court agreed with the ITAT, holding that the assessee did not disclose material facts necessary for the application of section 40A(5) and thus, the ITO had the jurisdiction to reopen the assessments under section 147(a). The court found no infirmity in the ITAT's order and answered the first question of law against the assessee.

2. Inclusion of Specific Expenditures in the Amount Disallowable under Section 40A(5):
The second issue involved determining whether the expenditures on property tax, electricity charges, depreciation, and repairs should be included in the disallowable amount under section 40A(5). The ITAT held that these expenditures should be included, relying on previous decisions by the Madras High Court and the Kerala High Court.

The High Court, in its analysis, referred to the Supreme Court's decision in CWS (India) Ltd. v. CIT, which held that depreciation allowance and maintenance expenses incurred on a house used by a director or employee are subject to the ceiling limit under section 40A(5). The court agreed that electricity charges and depreciation incurred on the house used by the deputy chairman should be included under section 40A(5).

Regarding repair expenses, the court noted the Karnataka High Court's decision in CIT v. Motor Industries Co. Ltd. (No. 2), which excluded normal repair expenses from section 40A(5). However, the High Court held that the Supreme Court's decision in CWS (India) Ltd. v. CIT applies, and repair expenses for maintaining the house in a comfortable and habitable condition should be included under section 40A(5).

For property tax, the court distinguished it as a statutory liability falling on the assessee as the owner of the house, irrespective of its use by the deputy chairman. The court agreed with the Karnataka High Court's view that property tax cannot be considered a perquisite under section 40A(5) and thus should not be included in the disallowable amount.

Conclusion:
The High Court answered the first question in the affirmative and against the assessee, validating the reopening of assessments under section 147(a). For the second question, the court held that expenditures on electricity charges, depreciation, and repairs should be included in the disallowable amount under section 40A(5), but property tax should not be included. The Revenue was entitled to costs of Rs. 1,000.