1990 (6) TMI 49 - HC - Income Tax

Summary

Issues Involved:
1. Applicability of Rule 3(c)(ii) of the Income-tax Rules, 1962.
2. Direction to the Income-tax Officer regarding valuation of perquisites and disallowance under section 40A(5) of the Income-tax Act, 1961.

Issue-wise Detailed Analysis:

1. Applicability of Rule 3(c)(ii) of the Income-tax Rules, 1962:

The primary issue was whether the Income-tax Appellate Tribunal was correct in applying or relying on Rule 3(c)(ii) of the Income-tax Rules, 1962, for valuing the perquisites provided by the assessee to its employees. The Tribunal followed the decision of the Calcutta High Court in CIT v. Britannia Industries Co. Ltd. [1982] 135 ITR 35, which dealt with section 40(c)(iii) of the Income-tax Act as it stood at that time. However, the court noted that the context and language of section 40A(5) (applicable in this case) differ from the earlier section 40(c)(iii). The court highlighted that the objects of section 40A(5) and Rule 3(c)(ii) are distinct and different. Section 40A(5) aims to check extravagant expenditure by the employer, while Rule 3(c)(ii) focuses on taxing the perquisites actually received by an employee. The court observed that the Tribunal failed to properly evaluate or consider these distinctions and the relevant statutory provisions applicable in this case.

2. Direction to the Income-tax Officer regarding valuation of perquisites and disallowance under section 40A(5) of the Income-tax Act, 1961:

The Tribunal directed the Income-tax Officer to value the perquisites by way of the cars provided by the assessee to its employees as per Rule 3(c)(ii) and to consider only this amount for disallowance under section 40A(5). The court found that the Tribunal assumed the decision in Britannia Industries Co. Ltd.'s case was directly applicable without a detailed evaluation. The Tribunal did not consider how the Income-tax Officer worked out the disallowance or the detailed statement filed by the assessee showing expenses incurred. The court emphasized that the perspective with which the provisions of the Act and the Rules should be viewed are different, and the Tribunal's conclusion was unsatisfactory and perfunctory.

Conclusion:

The court declined to answer the questions referred by the Tribunal. Instead, it directed the Income-tax Appellate Tribunal to restore the appeal to its file and decide the matter afresh in accordance with law and the observations contained in the judgment. The reference was disposed of with instructions for a detailed and in-depth consideration of the relevant provisions of the Act and the Rules.