1982 (5) TMI 89 - AT - Income Tax

Summary

Issues:
- Application of s. 40(a)(v)/40A(5) to expenditure on buildings occupied by employees and depreciation on the same.
- Application of s. 40(a)(v)/40A(5) to motor cars used by employees.

Analysis:

Issue 1: Application of s. 40(a)(v)/40A(5) to buildings occupied by employees and depreciation:
The appeals by the Revenue concern the application of s. 40(a)(v)/40A(5) to the expenditure on buildings occupied by the assessee's employees and the depreciation on the same. The Kerala High Court held that both the expenditure and depreciation on such buildings should be considered for disallowance under s. 40(a)(v)/40A(5). The CIT(A) initially ruled against including the expenditure and depreciation on buildings for these provisions. However, it was determined that the Revenue's stance on buildings should be upheld based on the High Court's decision. The judgment clarified that only the portion of expenditure and depreciation attributable to personal use of motor cars by employees should be considered for s. 40(a)(v)/40A(5) application.

Issue 2: Application of s. 40(a)(v)/40A(5) to motor cars used by employees:
The controversy arose when the assessee's counsel argued that the High Court's decision was based on incorrect facts, as the assessee charged municipal value as rent from employees residing in its buildings. The counsel contended that this fact distinguishes the case from the one referred to the High Court. The Department argued that charging municipal value does not equate to fair market rent and relied on a previous Kerala High Court decision. The Tribunal examined the facts and concluded that the municipal value represented fair rent due to lack of evidence showing concessional rent charged to employees. The Tribunal emphasized that s. 40(a)(v) and s. 40A(5) do not require assets to be used without consideration for application. The High Court's decision for the asst. yr. 1974-75 was deemed applicable to the assessment years under appeal, leading to the inclusion of expenditure and depreciation on buildings for s. 40A(5) calculation.

Conclusion:
The Tribunal partially allowed the appeals, upholding the CIT(A) orders on motor cars but restoring the ITO's orders on buildings occupied by employees. The decision clarified that fair rent, even if charged to employees, does not exempt the inclusion of expenditure and depreciation for s. 40A(5) application.