1989 (4) TMI 29 - HC - Income Tax

Summary

Issues Involved:
1. Disallowance u/s 40(a)(v)/40A(5) regarding rent.
2. Reimbursement of medical expenses as perquisite u/s 40(a)(v).
3. Exclusion of club bills reimbursement from disallowance u/s 40(a)(v).
4. Allowability of legal expenses for transfer of registered office as revenue expenditure.
5. Allowability of provision for gratuity estimated on actuarial basis.
6. Invocation of section 52(2) for computing capital gains without proof of understatement.

Summary:

1. Disallowance u/s 40(a)(v)/40A(5) regarding rent:
The Tribunal directed the Income-tax Officer to use the formula in rule 3 of the Income-tax Rules, 1962, for valuing perquisites. However, the High Court held that the disallowance should be based on the actual expenditure incurred by the assessee for providing accommodation to the employees and not on the formula in rule 3. The Tribunal's direction was thus incorrect.

2. Reimbursement of medical expenses as perquisite u/s 40(a)(v):
This issue was concluded by the decision in Indian Leaf Tobacco Development Co. Ltd. v. CIT [1982] 137 ITR 827. The court answered in the affirmative and in favor of the assessee.

3. Exclusion of club bills reimbursement from disallowance u/s 40(a)(v):
This issue was concluded by the decision in CIT v. Johnston Pumps (India) Ltd. [1988] 172 ITR 333. The court answered in the affirmative and in favor of the assessee.

4. Allowability of legal expenses for transfer of registered office as revenue expenditure:
The Tribunal held that the legal expenses were necessary for carrying on the business and were thus revenue expenditure. The High Court agreed, distinguishing the case from CIT v. Jamshedpur Engineering and Machine Manufacturing Co. Ltd. [1986] 157 ITR 730 (Pat), and held that the legal expenses were for the purpose of carrying on the business and should be allowed as revenue expenditure.

5. Allowability of provision for gratuity estimated on actuarial basis:
This issue was concluded by the decision in CIT v. Eastern Spinning Mills Ltd. [1980] 126 ITR 686. The court answered in the affirmative and in favor of the assessee.

6. Invocation of section 52(2) for computing capital gains without proof of understatement:
This issue was concluded by the Supreme Court decision in K. P. Varghese v. ITO [1981] 131 ITR 597. The court answered in the negative and in favor of the assessee.

Conclusion:
The High Court provided clear answers to the issues based on precedents and specific facts of the case, favoring the assessee in all the questions considered.