1994 (3) TMI 1 - SC - Income Tax

Interpretation of section 40(a)(v) as well as section 40A(5) - applicability of ceiling u/s 40A(5) to perquisites given for use to employees for his own purpose or benefit

Summary

Issues Involved:
1. Interpretation of section 40(a)(v) and section 40A(5) of the Income-tax Act, 1961.
2. Applicability of the ceiling limit prescribed in section 40(a)(v) to expenditures incurred by the assessee.
3. Inclusion of depreciation allowance and repair expenses under the term "allowance" in section 40(a)(v) and section 40A(5).

Detailed Analysis:

1. Interpretation of section 40(a)(v) and section 40A(5) of the Income-tax Act, 1961:
The judgment addresses the interpretation of section 40(a)(v) and section 40A(5) of the Income-tax Act, 1961. Section 40(a)(v) was in force until March 31, 1972, after which section 40A(5) came into effect. Both provisions aimed to limit the expenditure incurred by assessees that resulted in benefits, amenities, or perquisites to employees. The main controversy was whether the ceiling limit applied to expenditures related to assets used by employees for their own purposes or benefits.

2. Applicability of the ceiling limit prescribed in section 40(a)(v) to expenditures incurred by the assessee:
The court examined the contention that the ceiling limit prescribed in section 40(a)(v) did not apply to expenditures related to assets used by employees unless the employee also received a benefit, amenity, or perquisite. The court disagreed with this interpretation, stating that the intention of Parliament was to apply the ceiling limit to both situations mentioned in section 40(a)(v): (i) benefits, amenities, or perquisites provided to employees, and (ii) expenditures related to assets used by employees. The court emphasized that a literal interpretation leading to discriminatory or incongruous results should be avoided. The Full Bench of the Kerala High Court's interpretation, which applied the ceiling limit to both situations, was upheld.

3. Inclusion of depreciation allowance and repair expenses under the term "allowance" in section 40(a)(v) and section 40A(5):
The court addressed two additional contentions raised by the assessee: (i) whether the term "allowance" included depreciation allowance, and (ii) whether repair expenses were includible in the expenditure referred to in the provisions. The court held that the term "allowance" in section 40(a)(v) and section 40A(5) included depreciation allowance, as the language of the provisions clearly encompassed any allowance in respect of assets used by employees. However, the court declined to address the issue of repair expenses, as it was not raised or answered by the High Court.

Separate Judgments:
The judgment also mentioned Civil Appeals Nos. 5018 to 5021 of 1991, where the first question was answered against the assessee based on the Full Bench decision in CIT v. Forbes, Ewart and Figgis (P.) Ltd. The second question in these appeals was referred to a three-judge Bench and was to be heard along with Civil Appeal No. 816 of 1988 (Industrial Chemicals v. CIT).

Conclusion:
The appeals, except for Civil Appeals Nos. 5018 to 5021 of 1991, were dismissed. The latter appeals were dismissed concerning the first question but were to subsist and be heard regarding the second question. No costs were awarded.