1997 (8) TMI 29 - HC - Income Tax

Perquisite Personal Use Car Medical Reimbursement Depreciation Machinery Foreign Currency

Summary

Issues involved:
The judgment addresses the following Issues:
1. Interpretation of section 40A(5) of the Income-tax Act, 1961 regarding disallowance of perquisites provided to employees.
2. Whether the Assessing Officer is obligated to allow depreciation to an assessee without a specific claim.
3. Treatment of loss due to fluctuation in foreign exchange rate as capital or revenue expenditure.

Interpretation of section 40A(5) - Disallowance of Perquisites:
The case involved a company providing perquisites to employees, specifically related to the value of car facilities provided. The Assessing Officer disallowed the perquisites exceeding 1/5th of the salary paid to the employees, including factors like rent-free accommodation, medical expenses, and club membership fees. The Tribunal held that the value of perquisites, including car facilities, should not exceed 1/5th of the salary. It was clarified that medical reimbursement is not considered a perquisite. The court affirmed the disallowance of perquisites exceeding the statutory limit under section 40A(5).

Obligation to Allow Depreciation:
Regarding the obligation of the Assessing Officer to allow depreciation without a specific claim, the court referred to previous judgments. It was established that if an assessee does not claim depreciation, the Assessing Officer is not required to allow it. The court relied on precedents to conclude that depreciation cannot be allowed suo motu if not claimed by the assessee.

Treatment of Loss due to Fluctuation in Foreign Exchange Rate:
The assessee incurred a loss due to fluctuation in the exchange rate during the repayment of a foreign currency loan. The Assessing Officer treated this loss as capital expenditure, not admissible as revenue expenditure. The Tribunal upheld this view, directing verification of the amount paid and allowing depreciation on it. The court cited various High Court judgments supporting the treatment of additional payments due to exchange rate fluctuations as part of the cost of acquisition, thus classifying it as capital expenditure.