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Issues involved:
1. Disallowance of expenditure on repairs of flats u/s 40A(5). 2. Deductibility of surtax liability u/s 37. 3. Appealability of interest levy u/s 215. Summary: Issue 1: Disallowance of expenditure on repairs of flats u/s 40A(5) The Tribunal referred the question of whether the expenditure on repairs of flats owned or leased by the assessee and used by its employees for residence is to be disallowed u/s 40A(5). The assessee argued that such expenditure did not result in any perquisite to the employees and was merely to maintain the flats in habitable condition. However, the Revenue contended that sub-clause (ii) of clause (a) of section 40A(5) was applicable, which does not require the expenditure to result in any perquisite to the employees. The court held that the second part of section 40A(5)(a)(ii) applies to expenditure on assets used by employees for their benefit, thus the expenditure incurred by the assessee was covered and hit by the provisions of section 40A(5)(a)(ii). The court answered the reframed question in the affirmative and in favor of the Revenue. Issue 2: Deductibility of surtax liability u/s 37 The question involved whether the surtax liability is deductible u/s 37 and whether it is hit by section 40(a)(ii). The court noted that several High Courts had disallowed the deduction of surtax liability, considering it as a tax on profits and not an expenditure incurred wholly and exclusively for business purposes. The court agreed with this view, stating that surtax is an application of profits and not an expenditure laid out for business purposes. The court also considered that surtax is a tax on a portion of the profits and gains of the business, thus falling within the ambit of section 40(a)(ii). Consequently, the court held that surtax is not allowable as a deduction u/s 37 and answered the second question in the negative and in favor of the Revenue. Issue 3: Appealability of interest levy u/s 215 The Tribunal held that the levy of interest u/s 215 was not appealable. The court referred to the Full Bench decision in CIT v. Daimler Benz A. G. [1977] 108 ITR 961, which allowed an appeal if the assessee denied liability to pay interest on the ground that they were not liable to pay advance tax. However, in the present case, the assessee did not make a prima facie case for denying liability to pay advance tax or interest u/s 215. The court observed that mere denial of liability without substantive grounds does not make the appeal competent. The court followed the precedent set by its own decisions and answered the third question in the affirmative and in favor of the Revenue. Conclusion: All three questions were answered in favor of the Revenue, with the court upholding the disallowance of expenditure on repairs of flats u/s 40A(5), the non-deductibility of surtax liability u/s 37, and the non-appealability of interest levy u/s 215.
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