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TMI Blog1997 (6) TMI 64X X X X Extracts X X X X X X X X Extracts X X X X ..... d the value of the perquisites at Rs. 54,000. On appeal, the CIT(A) directed the Assessing Officer to accept the value of perquisite as returned by the assessee, especially since the property in question is also used for official purposes. As against this order of the CIT(A), the revenue is in appeal before the Tribunal. 3. The Departmental Representative supported the order passed by the Assessing Officer. The assessee's counsel, on the other hand, filed a paper book containing, inter alia, the order of the Tribunal dated 6-6-1984 in ITA Nos. 2041 and 2402/Mad./83, in the assessee's own case for the assessment years 1978-79 and 1979-80, wherein the perquisite value of the property in question was fixed by the Tribunal at 60% of the municipal valuation of Rs. 29,450, i.e., Rs. 18,000. He, therefore, argued that the same value be adopted for this assessment year also, i.e., at 60% of the annual letting value as fixed by the Corporation of Madras. In any event, the assessee's counsel submitted that there is no change in the facts for the assessment year under consideration. 4. Since, in our opinion, the finding of the first appellate authority on this issue is in consonance with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee that he joined the clubs only as directed by the company and for the company's benefit. We find that the Assessing Officer's proposal to treat this amount as perquisite in the hands of the assessee was approved by the IAC in his order under section 144B(4), on the ground that the subscription paid by the company for memberships will create a benefit for the assessee and that an element of perquisite is involved. After hearing both the parties, we are satisfied that the action of the first appellate authority on this issue has to be confirmed as he followed the decision of the Tribunal in the case of Vulcan Alloys Industries (P.) Ltd. [1983] Taxation 68/2 (Ahd.). We also find force in the assessee's contention that the membership fee paid to clubs in turn indirectly promoted the business interest of the assessee's company, which paid the club subscription. In these circumstances, this ground of the revenue is also rejected. 9. In the next ground, the department urged that the CIT(A) erred in holding that the sum of Rs. 25,000 should be allowed as a deduction in computing the assessee's income earned from consultancy services. During the assessment year, the assessee claimed R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd Mr. Natarajan's statement were made available to the assessee. The assessee by his letter dated 16-2-1983 replied and offered a sum of Rs. 44,000 as 'income from race bettings'. It was explained that the bunch marked 'A' 'B' represented only the identity of the two separate sheets and do not refer to anything else. The Assessing Officer did not appreciate the explanation offered by the assessee and stated that Sri Natarajan has spoken in a clear and unambiguous terms to explain the nature of the slips and entries therein and also stated that Sri Natarajan has deposed that he has handed over a sum of Rs. 88,109.25 to the assessee. The Assessing Officer observed that the fact that the exact nature and source of the entire amount remains unexplained. Accordingly, he held that in the absence of satisfactory explanation for the nature and source of the two sums referred to in the sheet of paper they represent the income and treated the same as income from undisclosed sources and added the sum of Rs. 2,13,997. The IAC in the course of giving directions under section 144B analysed the issue and held that the addition under the head 'Other sources' should be limited to Rs. 95,632 whic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion is not justified inasmuch as held in many cases that on the basis of uncorroborated testimony and the evidence taken from the third party an assessment cannot be made in another person's hands. He reiterated the contention that the very use of the material is objected, which according to him is unconnected with the business of the assessee and seized from the residence of a stranger. Further, the assessee's counsel relied upon the decision of the Hon'ble Supreme Court in the case of Kishinchand Chellaram v. CIT [1980] 125 ITR 713/14 Taxman 29 to the effect that in the given circumstances, the burden was on the department to show that the money belonged to the assessee by bringing proper evidence on record and the assessee could not be expected to call third parties in evidence to help the department to discharge the burden that lay upon it. The assessee's counsel stressed that the Supreme Court in the above case had held that even assuming that the letters were to be taken into account, those letters would at the highest establish that an employee of the assessee remitted the amount from Madras and another employee received at Bombay on behalf of the assessee. Placing reliance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of acquisition in the form of covering charges incurred at Rs. 1,000 and took the balance of Rs. 15,664 as capital gains (long-term). The CIT(A) held that the expenditure incurred for maintenance of a horse or the covering charges incurred cannot be taken as the cost of progeny. There are so many other expenses like vetenary charges to post-natal and ante-natal medical care, upbringing, etc., which results in a saleable horse. The actual cost of the colt sold to the owner is not capable of being ascertained as there is no direct cost to the assessee in the up-bringing of the horse sold. The connection between the sale of the horse and the maintenance of its parents is too remote. The CIT(A) found that under the agreement, the assessee does not maintain the cost of bringing up the colt but bears only a portion of the cost of the parents. He, therefore, held that the computation of capital gains is incorrect as the cost of acquisition is not ascertainable and relying upon the decision of the Supreme Court in the case of CIT v. B.C. Srinivasa Setty [1981] 128 ITR 294/5 Taxman 1, deleted the said addition. 18. We have considered the rival submissions and perused the papers filed befo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e. My learned brother has held that the finding of the Commissioner (Appeals) is in consonance with the value fixed by the Municipal Corporation and, therefore, the direction given by the Commissioner (Appeals) was upheld by him. In my opinion, this conclusion of my learned brother is patently wrong inasmuch as the Tribunal by its order dated 6-6-1984 in ITA Nos. 2401 2402 (Mad.)/1983 relating to the assessment years 1978-79 and 1979-80, found at pages 31 to 33 of the paper book, has held that in the absence of any other material in evidence, the annual letting value would be relevant for this purpose and 60 per cent of the accommodation is used for personal purposes and, therefore, it is taken at Rs. 18,000. In view of the decision of the Tribunal, the order of the Commissioner (Appeals) on this point is set aside and the Assessing Officer is directed to adopt 60 per cent of the relevant annual letting value or in the absence of such annual valuation adopt the perquisites of Rs. 18,000 as adopted by the Tribunal for the earlier assessment years. 3. Reimbursement of electricity charges-While the Assessing Officer adopted Rs. 12,030 out of Rs. 20,550, the Commissioner (Appeals) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (Agencies) Pvt. Ltd., the perquisite value of Rs. 12,000 has been taken into account for the user of the car by the assessee. For the purpose of section 40(c), the user of the car is established. Any unauthorised or illegal user of the car is also sufficient for valuation of perquisites-vide the decisions of the Madras High Court in the case of CIT v. A.R. Adaikappa Chettiar [1973] 91 ITR 90 and also in the case of CIT v. S.S.M. Lingappan [1981] 129 ITR 597/7 Taxman 71. Accordingly, the Commissioner (Appeals) is not justified in cancelling the addition. Therefore, the order of the Commissioner (Appeals) on this point is set aside and that of the Assessing Officer is restored. 7. Standard deduction-While, the Assessing Officer has not allowed any standard deduction on the ground that the remuneration received was assessed under the head 'Other sources' and not under the head 'Salary', the Commissioner (Appeals) allowed full deduction by relying on the decision of the Madras High Court in the case of G. Venkataraman. My learned brother has upheld the order of the Commissioner (Appeals). I do not agree with the conclusion reached by my learned brother. Following my decision in respe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... llowing points of difference of opinion for consideration of the Third Member under section 255(4) of the Income-tax Act, 1961:- "1. Whether, on the facts and in the circumstances of the case, the perquisite value in respect of rent-free accommodation should be taken as adopted by the Commissioner (Appeals) or at 60% of the relevant annual letting value or in the absence of such annual valuation adopt the same at Rs. 18,000 as per the earlier order of the Tribunal? 2. Whether, on the facts and in the circumstances of the case, the perquisite value in respect of reimbursement of electricity charges is to be taken at 60 per cent of the same? 3. Whether, on the facts and in the circumstances of the case, the perquisite value in respect of reimbursement of telephone bills is to be taken at 60% of the same? 4. Whether, on the facts and in the circumstances of the case, the perquisite value in respect of the car should be taken at Rs. 12,000 for disallowance under section 40(c)? 5. Whether, on the facts and in the circumstances of the case, the assessee is entitled to full standard deduction or not? 6. Whether, on the facts and in the circumstances of the case, assessing a su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n were forwarded to the IAC, Central Range-II, Madras under the provisions of section 144B of the Income-tax Act, 1961. The IAC found that the facts of the case were similar to the assessment year 1979-80 and, therefore, directed the ITO to adopt the value of perquisite at Rs. 54,000 as was directed by him in the earlier year in the place of Rs. 1,08,000 fixed by the Assessing Officer. The assessee's main argument before the CIT(Appeals) was that the value of the perquisite cannot exceed the annual letting value of the building. According to him, the Supreme Court in the case of Delhi Municipal Corporation v. Sheela Kaushik has held that the estimate of annual letting value cannot exceed the rental income which the owner can receive. The bungalow is located in a place where the Rent Control Act is in force. A portion of the building is used for official purposes. It belongs to the company and not to the individual. The CIT(A) proceeded to accept the assessee's value of perquisite by observing as under:- "13. I have carefully considered the arguments of the appellant. In view of the Board's circular referred to above and the Supreme Court's decision, the value of the perquisite ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of telephones. This is about 50% of the total expenses incurred. The learned Judicial Member has upheld the deletion on the ground that these expenses were incurred not solely for the assessee's benefit but also for maintaining the company's office. Support was drawn from the decisions of the Madras High Court in G. Venkataraman's case and Manjushree Plantations Ltd.'s case. However, the learned Sr. Vice-President has reversed the findings of the CIT(Appeals) on these issues. It was submitted by the learned counsel for the assessee that the property in question is owned by South India Corporation Agencies (P.) Ltd. and it has paid the maintenance expenses in the form of electricity charges. There is no perquisite or a personal benefit in the provision of these facilities. According to him, the decision of the Madras High Court, relied upon by the learned Judicial Member fully supports the case of the assessee. In fact, it was pointed out that the Division Bench in the assessment year 1981-82 has deleted such additions. The departmental representative, on the other hand, strongly relied upon the order of the Sr. Vice-President. 7. On careful consideration of the material on recor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng as regards the addition in respect of perquisite of car, I am of the opinion that the assessee is entitled for full standard deduction. 11. The next issue relates to an addition of Rs. 5,632 made by the Assessing Officer relating to Sri I.K. Natarajan. In the question as well as in the order of the Sr. Vice-President, it is wrongly mentioned as Rs. 9,56,321. I have verified the records and find that the addition made by the Assessing Officer is only Rs. 95,632. The facts leading to this addition are that there was a search and seizure operation and papers were seized from one Sri I.K. Natarajan's residence. Sri I.K. Natarajan was a General Manager of South India Sugars. A bunch of papers containing 84 pages was seized from his residence. Shri Natarajan was also examined. The Assessing Officer was of the view that Shri Natarajan was a business associate and transactions in the accounts maintained by Shri Natarajan are the undisclosed business transactions of the assessee. The CIT Appeals) deleted the addition. His discussions are as under:- "8. I have carefully considered the arguments of the appellant and have also seen the relevant records. In the first place, it is not cor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion cannot be made on the basis of uncorroborative evidence and slips of papers taken from the residence of a third party. The learned counsel pointed out that there is no material to indicate that what was seized from Shri Natarajan's residence represents the assessee's business transactions. The departmental representative, on the other hand, strongly supported the findings of the Assessing Officer. 14. In my view the addition is totally unjustified in the hands of the assessee. Shri I.K. Natarajan is General Manager of South India Sugars and is a third party and an addition cannot be made in respect of certain materials found in the residence of a third party. I am of the opinion that in the facts and circumstances of the case the department has not brought any material or established any link between the papers that were seized from Shri Natarajan and the business transactions of the assessee. I, therefore, subscribe to the reasoning given by the learned Judicial Member to delete the addition. 15. Now the matter will go before the Division Bench to decide the issue in accordance with the majority opinion. Per N.D. Raghavan, Judicial Member-The appeal of the revenue and t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to full standard deduction or not? 6. Whether, on the facts and in the circumstances of the case, assessing a sum of Rs. 9,56,321 as income from other sources is justified or not?" 6. Thereafter, in accordance with the directions of the Hon'ble President, the matter was assigned to a Third Member and it was heard by the learned Accountant Member Shri G.E. Veerabhadrappa, as Third Member, and for the various reasons recorded by him in his order dated 21-2-1997 after careful analysis of all the points in issue in the light of the submissions made by both the parties, ultimately agreed on the issue in question as below: Question No. 1 - This issue is dealt with in paragraphs 3 to 5 of his order, wherein the Third Member has ultimately agreed with the opinion of the learned Sr. Vice-President and directed the Assessing Officer to value the perquisite in question at Rs. 18,000 in line with the order of the Tribunal in this regard. Thus, the view expressed by the learned Judicial Member has been rejected by the learned Third Member. Question No. 2-This issue is dealt with in paragraphs 6 and 7 of the learned Third Member's order. Ultimately, it was opined by him that following t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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