1992 (11) TMI 22 - HC - Income Tax

Summary

Issues: Interpretation of section 37(3A)/(3B) of the Income-tax Act, 1961 regarding reimbursement of motor car expenses incurred by employees for business purposes.

Analysis:
The High Court of Calcutta was tasked with interpreting the provisions of section 37(3A)/(3B) of the Income-tax Act, 1961 in a reference concerning the reimbursement of expenses incurred by employees of an assessee-company for using their own motor cars for business purposes. The Tribunal referred the question of whether the reimbursement was hit by section 37(3A)/(3B) to the court for opinion. The assessee-company derived income from manufacturing and sale of printing inks and synthetic resins, and reimbursed employees for expenses related to using their own motor cars for business, totaling Rs. 5,49,917 during the relevant year.

The Income-tax Officer, Commissioner of Income-tax (Appeals), and Tribunal all held that the reimbursement was not allowable under section 37(3A)/(3B). Section 37(3A) restricts deductions where expenditure on specified items exceeds a certain limit, including "running and maintenance of aircraft and motor cars." The court considered whether the reimbursement of motor car expenses incurred by employees should be included in this restriction.

The Revenue argued that the reimbursement should be considered as the employer's expenditure on running and maintenance of motor cars, not part of employees' emoluments. They relied on a precedent to support this position. On the other hand, the assessee contended that the legislative intent was unclear regarding whether such reimbursements should be covered by the provisions of section 37(3A)/(3B).

The court analyzed the clarity of the provisions and the applicability of the non obstante clause in section 37(3A)/(3B). They concluded that the provisions were clear and intended to limit the allowability of certain business expenditures, including motor car expenses. The court emphasized that the conveyance allowance given to employees for their expenses was also considered under these provisions, removing any ambiguity.

Ultimately, the court held that the reimbursement made to employees for motor car expenses used in the course of business operations fell within the scope of "expenditure on running and maintenance of motor cars" under section 37(3B). Therefore, they upheld the Tribunal's decision that the reimbursement was hit by section 37(3A)/(3B) of the Income-tax Act, 1961, ruling in favor of the Revenue and against the assessee. The judgment was agreed upon by both judges, and no costs were awarded.