1972 (2) TMI 22 - HC - Income Tax

Expenditure Tax Act, 1957 - assessee was at the material time a financial adviser to a limited company known - On April 10, 1956, that company passed a resolution that the assessee should be allowed free furnished residential accommodation in its house - The assessee was not to receive any other remuneration. While making the assessment under the Expenditure-tax Act, for the two years in question, the Expenditure-tax Officer included in the total expenditure of the assessee - the annual letting value of rent-free residence provided to the assessee and amount being taxes, insurance and other miscellaneous expenses in respect of the aforesaid residential accommodation- Whether an employee is liable for Expenditure-tax in respect of the annual letting value of the house given for employees occupation free of rent

Summary

Issues:
Interpretation of "expenditure" under the Expenditure-tax Act for assessment years 1958-59 and 1959-60. Whether the annual letting value of rent-free residence and taxes, insurance, and other expenses can be included in the total expenditure of the assessee.

Analysis:
The case involved a reference under section 25(1) of the Expenditure-tax Act, 1957, regarding assessments for the years 1958-59 and 1959-60. The dispute arose from the inclusion of the annual letting value of a rent-free residence and related expenses in the total expenditure of the assessee, who was a financial adviser to a company. The Tribunal had deleted these items from the expenditure, leading to the question of law being referred to the High Court.

The definition of "expenditure" under the Act was crucial in determining whether the items in question could be included. Section 2(h) defined expenditure as any sum spent or disbursed by the assessee or for which a liability was incurred. Additionally, section 4(i) specified that amounts incurred by any person other than the assessee for the benefit of the assessee could be included in the expenditure.

The High Court analyzed whether the company providing a rent-free residence to the assessee constituted an expenditure. It was established that merely using a capital asset, such as a house owned by the company, did not amount to incurring expenditure. Forgoing rent for the house did not qualify as expenditure as it did not involve a direct financial outlay by the company. Therefore, the annual letting value of the house was deemed not to be an item of expenditure.

Similarly, the court considered the taxes, insurance, and miscellaneous expenses related to the house. It was determined that the company paid these charges as the owner of the property, regardless of whether someone resided there. The expenses were not incurred specifically for the benefit of the assessee, and thus could not be classified as expenditure under the Act.

In conclusion, the High Court ruled in favor of the assessee, holding that the disputed items were not valid expenditures to be included in the assessment. The department was directed to pay the costs of the reference to the assessee.