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TMI Blog1990 (5) TMI 65X X X X Extracts X X X X X X X X Extracts X X X X ..... its Directors Shri K.G. Khosla and Shri J.C. Khosla were allowed to use of the car for their personal purposes. The Assessing Officer rejected the contention of the assessee that the element of personal use of the cars by its Directors was negligible. The Assessing Officer disallowed the depreciation on the cars used by one of the directors and also considering the decision of the CIT(Appeals) for the assessment year 1980-81 disallowed the actual expenditure on the cars. The assessee was aggrieved and claimed relief in respect of the depreciation disallowed on the car used by Shri J.C. Khosla Rs. 11,392 and the disallowance in respect of maintenance of cars of Rs. 26,000 and Rs. 19,000 on cars used by Shri K.G. Khosla and Shri J.C. Khosla ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... director or to a person who has a substantial interest in the company or to a relative of the director or of such person, as the case may be, (ii) any expenditure or allowance in respect of any assets of the company used by any person referred to in sub-clause (i) either wholly or partly for his own purposes or benefit, if in the opinion of the Assessing Officer any such expenditure or allowance as is mentioned in sub-clauses (i) and (ii) is excessive or unreasonable having regard to the legitimate business needs of the company and the benefit derived by or accruing to it therefrom, so, however, that the deduction in respect of the aggregate of such expenditure and allowance in respect of any one person referred to in sub-clause (i) shal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h reference to the legitimate business needs of the company and the benefits derived by the company or which might accrue to the company. While carrying out the evaluation the Assessing Officer had to relate to the aggregate of such expenditure. Thereafter two situations have been provided : (i) Where the expenditure or allowance exceeds eleven months ; and (ii) where the period does not exceed eleven months. In both the situations, the aggregate of amounts i.e., remuneration, commission, perquisite, etc. have been limited to Rs. 72,000 where the period exceeds eleven months and Rs. 6,000 for each month or part thereof where the period does not exceed eleven months. The Explanation which was added with effect from1-4-69clearly also indi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that has been incurred by the company. " In this case, however, the issue was not with reference to the disallowance to be made in the hands of the company but with reference to the amount that would be includible in the hands of the assessee with relevance to the element of double taxation on an item which was disallowed in the hands of the company. This decision also would be of no assistance to the assessee or to the revenue except for the obiter dictum is that the Explanation categorically provides for the disallowance irrespective of same amount being taxation in the hands of the individual Director. In the case of Nuchem Plastics Ltd., the Punjab Haryana High Court considered this specific question of the manner of evaluation of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uded under the head 'salary' for taxing of the total salary income. Section 40(c) is for the purpose of arriving at the allowable business expenditure in the hands of a company when such expenses are incurred by the company to the Directors. Therefore, there being no co-relation whatsoever between section 40(c) and sections 14 to 17 of the Income-tax Act, we are of the view that the claim of the assessee that the amount of expenditure incurred on the maintenance of the cars and the depreciation of the car has to be made with reference to Rule 3(c)(ii) is without any merit and accordingly it is rejected. 4. The second issue relates to interest disallowed under section 40A(8) paid on the current account of the Directors. The counsel for the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urt was-- " Whether, on the facts and in the circumstances of the case, the Tribunal is justified in holding that the amounts received from the directors and shareholders of the assessee private limited company does not represent 'deposits' within the meaning of section 40A(8) of the Income-tax Act and no disallowance of interest under section 40A(8) of the Income-tax Act is called for ? " On this question, the observation of Their Lordships was " the Tribunal having found that the interest was not paid by the assessee in respect of any deposit received by it, the Tribunal was right in holding that the disallowance under the provisions of section 40A(8) of the Act was not called for ". From the observation of Their Lordships, it is clea ..... X X X X Extracts X X X X X X X X Extracts X X X X
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