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TMI Blog2001 (8) TMI 12X X X X Extracts X X X X X X X X Extracts X X X X ..... nd maintenance of the 'cars. On appeal the Commissioner of Income-tax (Appeals) held that the value of perquisite of free cars provided to the employees is fixed by rule 3(c) of the Income-tax Rules, 1962, and the same value should be taken to be the value of the perquisite of the free cars provided to the employees for the purpose of making the disallowance under section 40A(5). In further appeal the Income-tax Appellate Tribunal upheld the order of the Commissioner of Income-tax (Appeals), in view of the decision of the Calcutta High Court in the case of CIT v. Britannia Industries Co. Ltd. [1982] 135 ITR 35. At the instance of the Revenue, the question that was referred to the High Court for its opinion was as follows : Whether, on the facts and in the circumstances, and on a correct interpretation of section 40A(5) of the Income-tax Act, 1961 and rule 3(c) of the Income-tax Rules, 1962, the Appellate Tribunal was justified in law in holding that the value of the free car provided to the employees for the purpose of working out the disallowance in the case of the employer, i.e., the assessee-company should be the same as prescribed by rule 3(c) of the Income-tax Rules ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any allowance in respect of any assets of the assessee used by an employee either wholly or partly for his own purposes or benefit, then, subject to the provisions of clause (b), so much of such expenditure or allowance as is in excess of the limit specified in respect thereof in clause (c) shall not be allowed as a deduction : Provided that where the assessee is a company, so much of the aggregate of (a) the expenditure and allowance referred to in sub-clauses (i) and (ii) of this clause ; and (b) the expenditure and allowance referred to in sub-clauses (i) and (ii) of clause (c) of section 40, in respect of an employee or a former employee, being a director or a person who has a substantial interest in the company or a relative of the director or of such person, as is in excess of the sum of seventy two thousand rupees, shall in no case be allowed as a deduction : ... (c) The limits referred to in clause (a) are the followings namely (ii) in respect of the aggregate of the expenditure and the allowance referred to in sub-clause (ii) of clause (a), one-fifth of the amount of the salary payable to the employee or an amount calculated at the rate Of one thousan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unt representing the normal wear and tear of the motor car which can reasonably be attributed to the user of the motor car by the assessee for his private or personal purposes ; so, however, that where a determination on the basis mentioned above presents difficulty, the value of the perquisite may be determined on the basis provided in the Table below TABLE Value of perquisite per calendar month 1 2 3 Where the h.p. rating of the car does not exceed 16 or the cubic capacity the engine does not exceed 1.88 litres Where the h.p. rating of the car exceeds 16 or the cubic capacity of the engine exceeds 1.88 litres Rs. Rs. 1. Where the motor car is owned or hired by the employer and all the expenses on maintenance and running are met or reimbursed to 300 400 2. Where the motor car is owned or hired by the employer but the expenses on maintenance and Funning for the assesses' privateor personal purposes are met by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch is the employer for the purpose of working out the ceiling under section 40(c)(iii). The Bombay High Court in the judgment and order under appeal has answered the question in favour of the assessee fallowing its earlier decision in the case of Geoffrey Manners and Co. Ltd. [1996] 221 ITR 695. In the said decision, the High Court held that though rule 3 has been framed for determination of the value of the motor car provided by the employer to the employee for the purpose of commuting ' the income chargeable under the bead Salaries , there is nothing wrong in applying the same for valuing the perquisites for the purpose of computing the disallowance under section 40A(5) of the Act because the rule has been framed by the Central Board of Revenue with a view to get over the difficulties that might arise in determining the value of the perquisite in respect of the use of the car owned and maintained by the employer of the employees. As already noticed, the Bombay High Court followed the opinion expressed by the Calcutta High Court in the case of Britannia Industries Co. Ltd. [1982] 135 ITR 35. In CIT v. Rajesh Textile Mills Ltd. [1988] 173 ITR 179, the Gujarat High Cour ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e able to claim deduction of expenditure up to the ceiling limit provided in the said section. This provision was enacted to curb extravagant expenditure. It does not contemplate deduction of the notional value of perquisites assessed in the hands of the employees. It contemplates the deduction of actual expenditure or on estimate basis where the details of the actual expenditure are not furnished. The employer has incurred the expenditure on the car and should be able to provide its figures. If he cannot, it is fair that the expenditure should be assessed on a realistic basis and not on the basis of rule 3 which applies qua the employee, who cannot provide the figures of actual expenditure since it is not he who has incurred it. The High Courts of Calcutta and Bombay have not properly considered that section 40A(5) and rule 3 operate in different fields and apply to different sets of assessees. The provision of the Act was enacted to provide for ceiling on expenditure on employees. The object of the rule is to give relief to the employees. Applying rule 3 for the purpose of determining the deduction in relation to the assessment of the employer would be doing violence to and ..... X X X X Extracts X X X X X X X X Extracts X X X X
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