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Issues Involved:
1. Whether the entire expenses on cars used by directors can be considered under Section 40(a)(v) or Section 40A(5) of the Income-tax Act, 1961. 2. Whether expenses incurred for the maintenance of buildings occupied by directors can be considered under Section 40(a)(v) or Section 40A(5) of the Income-tax Act, 1961. Issue-wise Detailed Analysis: 1. Expenses on Cars Used by Directors: The main question was whether the entire expenses on cars used by directors should fall within the scope of Section 40(a)(v) or Section 40A(5) of the Income-tax Act, 1961, which limits permissible expenditure on benefits provided to employees. The Tribunal found that the cars were used partly for personal purposes by the directors and partly for business purposes. Consequently, it held that only 1/3rd of the expenses on the cars could be considered for the purpose of Section 40(a)(v). The Revenue contended that the entire expenses should be subject to the ceiling limit specified in the provision, irrespective of the partial use for personal purposes. The court held that the restriction on the limit can only be in regard to the personal use and not in regard to the use of the vehicle for business purposes. The words "incurs directly or indirectly any expenditure or is entitled to any allowance in respect of any assets of the assessee used by an employee either wholly or partly for his own purposes or benefit" must be read and understood as "incurs directly or indirectly in respect of any assets of the assessee used by an employee either wholly or partly for his own purpose or benefit to the extent of such purpose or benefit." Therefore, only the expenses attributable to personal use should be subject to the ceiling limit. Hence, the Tribunal's decision to limit the expenses to 1/3rd was upheld. This question was answered in favor of the assessee and against the Revenue. 2. Expenses on Maintenance of Buildings: The other question concerned the expenses incurred for the maintenance of buildings occupied by directors. The Tribunal held that such expenses did not fall under Section 40(a)(v) or Section 40A(5) as they were not considered benefits, amenities, or perquisites to the employees. The Revenue argued that these expenses should fall within the scope of the said sections as they pertain to assets of the assessee used by the employees. The court referred to the legislative history and the object of the provisions, which aimed to limit extravagant benefits to employees. It was noted that the term "such employee" in Section 40(a)(v) should not be strictly construed to refer only to employees who derive direct benefits from the expenditure. The court concluded that expenses on the maintenance of buildings provided rent-free to employees indeed fall within the scope of Section 40(a)(v) and Section 40A(5). Therefore, the Tribunal's decision to exclude these expenses from the ceiling limit was incorrect. This question was answered in favor of the Revenue and against the assessee. Conclusion: The court concluded that: 1. Only the portion of car expenses attributable to personal use by directors should be subject to the ceiling limit under Section 40(a)(v) or Section 40A(5). 2. Expenses incurred for the maintenance of buildings occupied by directors should be considered under Section 40(a)(v) or Section 40A(5) and subject to the specified limits. All references were answered accordingly, and a copy of the judgment was directed to be sent to the Income-tax Appellate Tribunal, Cochin Bench.
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