1981 (2) TMI 108 - AT - Income Tax

Summary

Issues:
- Disallowance of motor car expenses and depreciation due to personal use by Directors
- Whether personal use of cars by Directors should be treated as a perquisite
- Justification of disallowances by the CIT (A)
- Applicability of Section 40 and 40A of the IT Act, 1961

Analysis:
The Appellate Tribunal, ITAT BOMBAY-D, heard appeals against orders of the CIT (A) regarding disallowance of motor car expenses and depreciation for the asst. yrs. 1976-77 and 1977-78 due to personal use by Directors. The Tribunal consolidated the appeals as the issue was common. The assessee, a Company, claimed expenses for motor cars, which the ITO disallowed partially for personal use by Directors. The CIT (A) partly allowed the appeals but sustained disallowances for non-business use. The assessee contended that personal use should be a perquisite for Directors and relied on legal precedents. The Departmental Representative supported the CIT (A)'s orders.

The Tribunal referred to previous decisions where personal use of company vehicles by Directors was not considered personal if for business purposes. Citing the Madras High Court decision, the Tribunal held that unless a benefit or perquisite was obtained through an arrangement with the Company, it should not be disallowed. The Tribunal found no excessive or unreasonable perquisite given to Directors, deleting the disallowance of car expenses and depreciation. Following the legal interpretations, the Tribunal concluded that disallowances by the CIT (A) were not justified and deleted them, allowing both appeals.

In summary, the Tribunal ruled in favor of the assessee, holding that personal use of cars by Directors should not be disallowed as a perquisite if used for business purposes. The Tribunal emphasized the need for a formal arrangement with the Company to consider benefits as perquisites. The disallowances made by the CIT (A) were deemed unjustified, and therefore, were deleted for both years under consideration. Consequently, both appeals were allowed in favor of the assessee.