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TMI Blog1983 (2) TMI 73X X X X Extracts X X X X X X X X Extracts X X X X ..... flats used by the officers should not be considered for the purpose of processing the disallowance under section 40A(5). This point had also come up before the Tribunal in the prior assessment years. The Tribunal had decided the issue in favour of the assessee-company. However, Shri Krishnan, for the department, submitted that this decision of the Tribunal in the prior years requires review. According to him, this point is now covered by the decision of the Kerala High Court in the case of CIT v. Forbes, Ewart Figgis (P.) Ltd. [1982] 138 ITR 1 (FB). Shri Gautam Doshi, for the company, on the other hand, submitted that the Kerala High Court would not apply in respect of buildings leased by the company ; it would apply only to buildings wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... well as section 40A(5). It would be remembered that section 40(a)(v) was in the statute till 1971-72 when it was deleted and substituted by section 40A(5). There were two sets of question before their Lordships : (i) expenses in respect of cars which were used both for business of the company and the personal use of the employees, and (ii) expenses on the maintenance and upkeep of the residences which were given rent-free to the employees. These questions had to be answered both under the provisions of section 40(a)(v) as well as section 40A(5). 3.4 The submissions of the department and the answers of the High Court in respect of cars cover the report up to page 13. The department's submission in respect of the second question viz., resi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e buildings beyond the limit specified in section 40(a)(v) of the Act for the period when that provision was in force and the corresponding limit specified in section 40A(5) of the Act for the years when that section was in force." 3.5 Now, a reading of the decision of the Full Bench gives the impression that a rent-free accommodation given to the employee would be covered by the expression 'any assets of the assessee used by the employee either wholly or partly for his own purposes or benefit', occurring in section 40A(5)(a)(ii). It seems to have been conceded so ; there is no discussion in the order of the Full Bench on this point. 3.6 Section 40A(5)(a)(ii) reads as follows : "(ii) incurs any expenditure which results directly or in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee used by the employee". . . 3.8 The question is contested before us and, therefore, we have to give a finding whether provision of a rent-free accommodation is to be considered as a perquisite or under the category of assets used by the employee. In our opinion, the expenses incurred by a company have to be considered only as providing a perquisite. That is because of the definition of perquisite in Explanation 2(b)(i). Rent-free accommodation provided to the employee is specifically brought in as a perquisite. Now, we have noticed that there are three types of expenditure covered by section 40A(5)(a)(ii). When one type of expenditure is covered by 'perquisite', it appears to us, it cannot be considered again as 'an asset used b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in repairs, re-modelling, etc., of a residential premises given to an employee would add to the value of perquisites. The facts of the case were that a building belonging to a company was given for the occupancy to the Mg. Director of the Company. The company paid the municipal rates, fue (sic) duty and insurance on the house and also expended considerable sums on repairs including the provision of new hot-house boiler, a fire place, a new water mains and the renewing of some plumbing works. These were treated as perquisites in respect of rent-free quarters. The House of Lords held that the owner's rates, fue (sic) duty and insurance were not expenditure in connection with the provision of living accommodation for the employee and that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , the Tribunal found that one-third of the car expenses referred to the personal use of the car by the employees and, therefore, the High Court on that finding upheld a disallowance under section 40A(5) of one-third of the car expenses. The ITO, in the case before us, considered half of the expenditure to be referable to the personal use of the car by the employees. On that finding, we must restore the addition made by the ITO. We are not convinced that the provisions of rule 3 would be applicable in this case. As the Kerala High Court has pointed out in the case cited above, the expenditure incurred on the use of the assets of the assessee by the employee to the extent of his benefit therefrom has to be considered under this head. The Kera ..... X X X X Extracts X X X X X X X X Extracts X X X X
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