1988 (4) TMI 26 - HC - Income Tax

Summary

Issues Involved:

1. Valuation of car perquisites u/s 40A(5)(a)(ii) of the Income-tax Act, 1961.
2. Computation of perquisites for furnished accommodation under rule 3 of the Income-tax Rules, 1962.
3. Disallowance of expenditure on residential accommodation for managing directors u/s 40A(5) of the Act.
4. Disallowance of canteen coupons expenditure u/s 37(2B) of the Income-tax Act, 1961 (not pressed).

Summary:

Issue 1: Valuation of Car Perquisites u/s 40A(5)(a)(ii)
The Tribunal held that the Appellate Assistant Commissioner was justified in valuing car perquisites at Rs. 6,060 and deleting the addition of Rs. 33,809 out of the total expenditure of Rs. 39,809 incurred by the assessee on motor cars for its directors. The Tribunal followed a previous decision in the case of Rohit Mills Company Ltd. The High Court, however, disagreed, stating that the provisions of section 40A(5) should be applied independently, and rule 3 of the Income-tax Rules, which is meant for computing income under the head "Salaries," cannot be used for this purpose. The Court emphasized that the actual expenditure incurred by the employer should be considered, not the value of perquisites as computed under rule 3.

Issue 2: Perquisites for Furnished Accommodation
The Tribunal held that the perquisites for furnished accommodation should be worked out based on rule 3 of the Income-tax Rules, 1962. The High Court disagreed, stating that the scheme of section 40A(5) is different and independent of rule 3, which is meant for computing income under the head "Salaries." The Court emphasized that the actual expenditure incurred by the employer should be considered.

Issue 3: Disallowance of Expenditure on Residential Accommodation u/s 40A(5)
The Tribunal disallowed the amount of Rs. 39,300 incurred by the assessee in maintaining residential accommodation for managing directors as perquisites under section 40A(5). The High Court upheld this decision, stating that the entire expenses on these perquisites should be considered while computing permissible deductions from the income of the assessee-company as per section 40A(5)(a).

Issue 4: Canteen Coupons Expenditure u/s 37(2B) (Not Pressed)
The Revenue did not press this issue for opinion, and hence, it was not examined by the Court.

Conclusion:
The High Court answered the questions referred to it as follows:
1. In the negative, in favour of the Revenue and against the assessee.
2. In the negative, in favour of the Revenue and against the assessee.
3. In the affirmative, in favour of the Revenue and against the assessee.
4. Not answered as it was not pressed.

The reference was disposed of with no order as to costs. An oral request for a certificate of leave to appeal to the Supreme Court was rejected.