Income Tax Appellate Tribunal - Delhi
Deputy Commissioner Of Income-Tax vs Haryana Oxygen Ltd. on 28 December, 1999
Equivalent citations: [2001]76ITD32(DELHI)
ORDER
1 to9.[These paras are not reproduced here as they involve minor issues].
10. Ground (b) of A.Y. 1983-84 is directed against the deletion of addition on account of car expenses. While computing the taxable income of the company, the Assessing Officer disallowed Rs. 8,000 out of car expenses for non business use of the vehicles. Before CIT(A), it was contended that the entire expenses were for business purposes and no disallowance could be made. The Ld. CIT(A) deleted the said disallowance by observing as under :--
"At the most, the perquisite value can be assessed in the hands of the concerned directors as the company can provide cars for personal use by the directors'.
11. In ITO v. Ashoka Betelnut Co, (P.) Ltd. [1984] 10 ITD 788 (Mad.) (TM), it was Held that where the assessee company by its conduct allowed its director to use its cars for personal purposes, the expenditure on said cars could not be disallowed. A decision, almost to the same effect was rendered by the Special Bench in the case of Daks Copy Services (P.) Ltd. v. ITO[19S9] 30 ITD 223 (Bom.) wherein it was held that the cars had been maintained for business purposes and the fact that part of expenses would be attributed to personal use of the car by the directors it would mean that the said part of expenditure constituted perquisites or benefit to the directors.
12. Their Lordships of the Madras High Court in the case of CIT v. Chitram & Co, (P.) Ltd. [1991] 191 ITR 96/55 Taxman 70 (Mad.) have held as under :
"Section 32(1) provides for depreciation on building, plant, machinery or furniture owned by the assessee and used exclusively for purposes of business or profession, while section 38(2) provides for depreciation with reference to user of building, plant, machinery or furniture not exclusively for the purpose of business or profession. In a case in which the building, machinery, plant or furniture, owned by the assessee is not exclusively used for purposes of business or profession, section 38(2) restricts the depreciation to a fair proportionate part thereof to be determined by the Income-tax Officer, after taking into account the user of the building, machinery, plant or furniture, for the purposes of business or profession. In the case of mixed user of the building, machinery, plant or furniture, the claim of depreciation has to be considered under section 38(2) and not under section 32(1). While section 38(2) provides for depreciation with reference to user of building, plant and machinery not exclusively for the purposes of business or profession, rule 5 of the Income-tax Rules, 1962, contemplates and applies to case falling under section 32 which deals with the use of the plant and machinery exclusively for the purpose of the business. Rule 5 would apply to cases falling under section 32 and not to cases falling under section 38(2)."
13. We are reminded of the classic decision rendered in the case of Salomanv. Saloman & Co. [1897] AC 22, wherein it was held that the entity of corporation is entirely separate from that of its shareholders, in so far as its assets are separate and distinct from those of its members, creditors and the members have no right to the assets of the corporation.
14. The legal entity of a company, apart from its directors is well established by catena of decisions in this regard. It is only when the corporate character is employed to commit any illegality that the courts will disregard it and the corporate veil will be pierced. The Supreme Court in the case of Delhi Development Authority v. Skipper Construction Co. (P.) Ltd [1 996] 4 CLJ 233 has laid down that court can ignore the corporate character and can look at the reality behind the veil in order to do justice between the parties concerned if it is shown that the corporate character is employed for the purpose of committing illegality or for defrauding others.
15. It is obvious that in the absence of any mala fides on the part of a company, its separate legal entity can't be disregarded. It is not the case of the Revenue that the company committed any illegality in the cloak of its corporate character. Hence the character of the company, distinct from its directors, is intact.
16. Now when the directors and the company are two separate legal entities, we fail to understand that how the use of car by the directors of the company can be characterised as non business purpose of the company. In our view, no disallowance under section 37(1) is justified. At the most, the perquisite value on account of personal use of cars can be considered as extra remuneration to the directors of the company.
17. The Hon'ble Bombay High Court in the case of CIT v. Thana Electricity Supply Ltd [1994] 206 ITR 727 has held that the decision of one High Court is neither binding precedent for another High Court nor for Courts or Tribunals outside its territorial jurisdiction.
18. That apart, the Hon'ble Madras High Court in Chitram & Co. (P.) Ltd (supra), proceeded to make disallowance for depreciation on account of personal use of car by the directors. It may be relevant to reproduce the provisions of section 38(2), so as to understand the controversy in hand, as under :--
"(2) Where any building, machinery, plant or furniture is not exclusively used for the purposes of the business or profession, the deductions under sub-clause (ii) of clause (a) and clause (c) of section 30, clauses (i) and (ii) of section 31 and clause (ii) of sub-section (1) of section 32 shall be restricted to a fair proportionate part thereof which the Assessing Officer may determine, having regard to the user of such building, machinery, plant or furniture, for the purposes of the business or profession".
19. A bare perusal of the relevant statutory provision indicates that where the plant and machinery are not used exclusively for the purpose of business only, the deductions towards current repairs, insurance premium against risk of damage or destruction and depreciation will be restricted to a fair proportionate part thereof as the Assessing Officer may determine. It is obvious that expenses on running of cars, such as petrol etc., do not fall within the ambit of this sub-section. It is only the amount of currcnt repairs, which are the subject matter of disallowance in the instant case and repairs are certainly distinct from running expenses, in as much as the repair pre-supposes damage to the asset which is sought to be remedied by incurring expenditure.
20. In the final analysis, we are not inclined to accept this ground of appeal of the Revenue. We, therefore, confirm the action of CIT(A) in this regard.
21. [This para is not reproduce here as it involve minor issue].