1980 (2) TMI 17 - HC - Income Tax

Summary

Issues:
Depreciation disallowance under section 10(4A) of the Indian Income-tax Act, 1922 on assets provided in the residence of the managing director of the assessee-company.

Analysis:
The case involved M/s. Har Prasad & Co. (P.) Ltd., the managing agents of M/s. Escorts Ltd., owning a house partly used as a guest house and partly as the managing director's residence. The dispute centered around claiming depreciation for assets in the house. The Income Tax Officer (ITO) disallowed depreciation for all three years, citing section 10(4A) of the Act. The Appellate Assistant Commissioner (AAC) upheld the decision based on the assessment order for the year 1956-57. However, the Tribunal ruled in favor of the assessee, stating the assets, though used by the directors personally, were for the company's business purposes as the company provided furnished accommodation. The Commissioner challenged the Tribunal's decision, arguing that both the ITO and AAC applied section 10(4A) while the Tribunal did not consider it, leading to the reference to the High Court under section 66(2) of the Act.

The High Court observed that the Tribunal's decision ignored the provisions of section 10(4A). The Court acknowledged the plausibility of the Tribunal's reasoning but highlighted clause (b) of section 10(4A), which restricts allowances for assets used by specific individuals if deemed excessive or unreasonable. The ITO and AAC had found the depreciation claim excessive, contrary to the Tribunal's decision. The Court emphasized that the Tribunal failed to consider this clause, leading to a flawed conclusion. The Court noted that including the asset's value in the managing director's income as a perquisite did not alter the applicability of section 10(4A). Therefore, the Court concluded that the Tribunal erred in disregarding the section and directed the Tribunal to reconsider the depreciation allowance in light of section 10(4A, without making any judgment on the correctness of the ITO or AAC's findings.

In conclusion, the High Court held that the Tribunal's decision was erroneous for overlooking the provisions of section 10(4A) and instructed the Tribunal to reassess the depreciation claim considering the section's requirements. The Court refrained from awarding costs in the matter.