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TMI Blog1989 (4) TMI 29X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee to its employees is to be considered as perquisite, benefit or amenity for the purpose of section 40(a)(v) of the Income-tax Act, 1961 ? (3) Whether, on the facts and in the circumstances of the case, the expenses of the club bills reimbursed by the assessee to its employees should be excluded from the computation of the total expenditure for the purpose of the disallowance under section 40(a)(v) of the Income-tax Act, 1961 ? (4) Whether, on the facts and in the circumstances of the case, the expenditure incurred by the assessee by way of legal expenses pertaining to the transfer of its registered office from Calcutta to New Delhi is an allowable revenue expenditure in computing the total income of the asses see for the accounting period relevant to the assessment year 1972-73 ? (5) Whether, on the facts and in the circumstances of the case, the provision for gratuity estimated on actuarial basis is an allowable revenue deduction in computing the income of the assessee for the accounting period relevant to the assessment year 1972-73 ? (6) Whether, on the facts and in the circumstances of the case, the Income-tax Officer, in the absence of proof of understatement ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Therefore, there was no question of restricting it to 10% or 12% as laid down in rule 3(a) of the Income-tax Rules, 1962. These percentages were laid down for purposes of valuation of rent-free residential accommodation enjoyed by the employees. In the case of the employer, the amount to be taken into account is the actual rent incurred. On further appeal, the Tribunal held as follows "... We have heard both the representatives of the assessee and the Department. It is true that rule 3 of the Income-tax Rules, 1962, applies only to the computation of the value of the perquisite provided to an employee for the purpose of assessing the same in his hands and the said rules do not, in turn, apply to the computation of the value of the perquisite for the purposes of making the disallowance under section 40(a)(v)/ 40A(5) of the Act in the assessment of the employer-company. However, the Benches of the Tribunal have been consistently taking the view that, in computing the value of the perquisites provided to the employees, the formula laid down in rule 3 of the Income-tax Rules, 1962, may conveniently be adopted, though that rule does not, in turn, apply." The Tribunal, therefore, di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... decision of the Calcutta High Court cannot be read as an authority that, in all cases, for the purpose of section 40(c)(iii), the value of the perquisite in the hands of the employees, computed in accordance with relevant rules, must be ascertained (at page 799). In order to disallow an expenditure incurred by a company in the provision of any benefit, etc., to an employee, it is not necessary that the value of the perquisite, etc., in the hands of the employee computed in accordance with the relevant rules must exceed one-fifth of the salary. For that purpose, it is the entire expenditure incurred by the employer that has to be taken into account (headnote)." We are also of the view that the decision in Britannia-Industries Co. Ltd. [1982] 135 ITR 35 (Cal) did not lay down any general principle that, in all cases, the value of the perquisite provided to an employee should be taken in the hands of the employer-assessee for the purpose of section 40(c)(iii) at the same figure as it was taken in the hands of the employee. In determining the value of the perquisite of free car provided to an employee, the total use of car, the use of the car for personal work of the employee and all ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee-company and so it is an expenditure laid out wholly and exclusively for the purpose of carrying on the business. The expenditure is only Rs. 1,000 which was incurred by way of legal expenses and is not expenditure for shifting of its head office from Calcutta to New Delhi. Mr. Moitra has drawn our attention to a decision in CIT v. Jamshedpur Engineering and Machine Manufacturing Co. Ltd. [1986] 157 ITR 730 (Pat). There, the assessee incurred Rs. 3,000 on account of payment to lawyers in connection with the shifting. The company incurred huge expenses in shifting its head office. One of the items of expenditure was a sum of Rs. 3,000 incurred on account of payment to the lawyers. The Income-tax Officer rejected the claim holding that the expenditure incurred on account of shifting of the head office was expenditure of a capital nature. According to the Appellate Assistant Commissioner, the expenditure was revenue in nature and not capital in nature. He, therefore, allowed the appeal holding that the assessee was entitled to deduction of that amount. The Income-tax Appellate Tribunal, on the basis of the judgment in CIT v. Modi Spinning and Weaving Mills Co. Ltd. [1973] 8 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and refitting the existing plant at a better site produced an advantage which enabled the trade to prosper and which could be expected to last for ever and was, therefore, capital expenditure. If the predominant and main purpose of incurring the expenditure is the carrying on of the business, the incidental advantage of that expenditure could not affect its revenue character. In the instant case, the assessee obtained the opinion of a lawyer in connection with the problem that may arise in case of actual shifting of the head office. This legal opinion, in our view, has nothing to do with the expenditure incurred for actual shifting of the head office. This expenditure is in connection with the carrying on of the business of the assessee. Before the Patna High Court, one of the items was lawyer's fees in connection with the shifting which was held to be capital expenditure. If the contention of the Revenue is accepted, then, in that case, all expenditure in connection with the shifting of an office would be on capital account. Similarly, any opinion that may be obtained by the assessee for the purpose of the business may be held to be a capital expenditure as it may affect the profi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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