1991 (10) TMI 27 - HC - Income Tax

Summary

Issues Involved:
1. Whether educational allowance, servants' allowance, and leave travel allowance should be treated as perquisites for computing disallowance under section 40A(5) of the Income-tax Act.
2. Whether interest paid on housing loan for the construction of employees' quarters is deductible or capital in nature for the assessment year 1981-82.
3. Whether the perquisite value of cars provided by the assessee to its employees should be valued as per rule 3(c)(iii) for purposes of disallowance under section 40A(5).
4. Whether 15% of expenditure on maintenance of shade trees is an allowable deduction for the assessment years 1980-81 and 1981-82.

Detailed Analysis:

1. Educational Allowance, Servants' Allowance, and Leave Travel Allowance as Perquisites:
The Tribunal addressed whether these allowances should be treated as perquisites for disallowance under section 40A(5) of the Income-tax Act. The Tribunal's decision was based on its earlier ruling in the assessee's own case for the assessment year 1978-79, where it was held that these allowances should be considered for disallowance. However, the Tribunal failed to provide a detailed analysis or reasoning, and did not properly consider the relevant case laws (CIT v. Toshiba Anand Lamps Ltd. and Travancore Tea Estates Co. Ltd. v. CIT). The High Court found the Tribunal's reasoning clumsy and vague, and directed the Tribunal to restore the appeals and determine the question afresh in accordance with law.

2. Interest Paid on Housing Loan for Construction of Employees' Quarters:
For the assessment year 1981-82, the Tribunal concluded that the interest paid on housing loans was capital in nature and not deductible, as the loan was taken for constructing a capital asset (employees' quarters). The High Court noted that the Tribunal did not investigate whether there was any legal obligation on the assessee to provide quarters to employees, which could affect whether the loan was for business purposes. The Tribunal also failed to discuss the Supreme Court decision in State of Madras v. G. J. Coelho. The High Court directed the Tribunal to restore the appeal and decide the matter afresh, considering these aspects.

3. Perquisite Value of Cars Provided to Employees:
The Tribunal, relying on its earlier decision in the case of Malayalam Plantations Ltd., directed the Income-tax Officer to compute the perquisite value of cars as per rule 3(c)(ii) of the Income-tax Rules. However, the High Court declined to answer this question, following its earlier decision in CIT v. Malayalam Plantations (India) Ltd., where it was held that the Tribunal's decision could not stand due to non-consideration of salient facts. The High Court directed the Tribunal to restore the appeals and decide the matter afresh in accordance with law.

4. Expenditure on Maintenance of Shade Trees:
For the assessment years 1980-81 and 1981-82, the Tribunal directed the deletion of the entire disallowance of Rs. 20,955 on maintenance of shade trees without proper evaluation or finding. The High Court found that the Tribunal's decision was arbitrary and lacked independent consideration of whether any disallowance was called for and, if so, the percentage of disallowance. The High Court directed the Tribunal to restore the appeals and adjudicate the matter afresh in accordance with law.

Conclusion:
The High Court declined to answer the questions referred to it by both the assessee and the Revenue. It directed the Income-tax Appellate Tribunal to restore the relevant appeals to its file and decide the matters afresh in accordance with law and the observations made in the judgment.