Issues involved: The judgment involves the disallowance of 1/6th of total car expenses and depreciation claimed by the assessee due to personal use of cars by directors.
Details of the Judgment:
*Issue 1: Disallowance of car expenses* The assessee, a private limited company, claimed business expenditure on vehicles used by directors for personal use. The Assessing Officer disallowed 1/6th of the expenditure, which was upheld by the Commissioner of Income-tax (Appeals) and the Tribunal. The Tribunal justified the disallowance based on personal use by directors.
*Issue 2: Legal arguments* The assessee contended that directors were entitled to use company vehicles as part of their salary and perquisites, making it a business expenditure. The expenditure was allowed in previous assessment years, and the disallowance was not justified without invoking specific sections of the Income-tax Act.
*Issue 3: Court's analysis* The High Court analyzed the provisions of the Companies Act, noting that remuneration to directors includes benefits like vehicle use. As a private limited company is a separate legal entity, personal use by directors does not equate to personal use by the company. The Court emphasized that the disallowance was not warranted based on the company's nature and legal framework.
*Issue 4: Tribunal's decision* The Court criticized the Tribunal for upholding the disallowance, citing inconsistency with past decisions and unwarranted reasoning. Quoting a Madras High Court case, the Court emphasized the importance of institutional consistency in judicial decisions.
*Conclusion:* The Court ruled in favor of the assessee, stating that the disallowance of car expenses was incorrect. The judgment highlighted the legal framework governing remuneration to directors and the distinct legal status of private limited companies. The reference was disposed of in favor of the assessee with no costs awarded.
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