Bombay High Court
Commissioner Of Income-Tax vs Empire Dyeing And Manufacturing Co. ... on 11 April, 1991
Equivalent citations: [1991]192ITR245(BOM)
JUDGMENT T.D. Sugla, J.
1. In this reference both at the instance of the Department and the assessee relating to the assessee's assessment for the assessment year 1973-74, the Income-tax Appellate Tribunal has referred to this court the following questions of law for opinion under section 256(1) of the Income-tax Act, 1961 :
2. "At the instance of the assessee :
1. Whether, on the facts and in the circumstances of the case, the provisions of accommodation to Mr. Swami in the building known as 'Chitra Koot Co-operative Housing Society Ltd., Bombay' is tantamount to a 'perquisite' as defined in Explanation 2(b) to section 40A(5) of the Income-tax Act, 1961 ?
2. If the answer to question No. 1 is in the affirmative, whether, in working out the disallowance under section 40A(5) of the Income-tax Act, 1961, the value of the said perquisite should be taken at the notional market rent of the flat as well as the full depreciation in respect thereof ?
3. Whether, on the fact and in the circumstances of the case, the house rent allowance to the employee, Mr. S. C. Malhotra, the conveyance allowance to Mr. S. C. Malhotra and Mr. Ashok Malhotra and the reimbursement of medical charge to the employees by the assessee are perquisites for the purposes of section 40A(5) of the Income-tax Act, 1961 ?"
3. At the instance of the Revenue :
4. Whether, on the facts and in the circumstances of the case, the gratuity liability amounting to Rs. 24,72,002 is an allowable deduction in determining the total income of the assessee for the assessment year 1973-74 ?"
4. So far as the first question is concerned, Shri Dastur, learned counsel for the assessee, has fairly conceded that provision of accommodation to Mr. Swami in "Chitra Koot" may be treated as amounting to a "perquisite" within the meaning of Explanation 2(b)(ii), section 40A(5), of the Income-tax Act, 1961.
5. As regards question No. 2, however, Shri Dastur submitted that though the provision of accommodation amounted to a "perquisite", its evaluation is required to be done in accordance with the provisions of section 40A(5) and not in the manner done by the Tribunal. In this context, he laid great emphasis on the language used in section 40A(5) to show that disallowance under section 40A(5)(b) can be made of that expenditure which the assessee has actually incurred or the allowance, if any, the employer is entitled to in respect of any asset allowed to be used by an employee. In the present case, the flat occupied by Shri Swami belonged to the assessee-company. There is, therefore, no scope for estimating the rent the assessee would have paid had he taken the flat on rent. The language of the section is clear as to its content. It only means that if, factually, the assessee has incurred any expenditure, say, in this case, by way of taxes, maintenance of the flat, society charges, etc., that amount would constitute a part of the prequisite. Similarly, if the assessee is allowed depreciation in respect of the flat, the amount allowed as depreciation would constitute the value of the perquisite in the hands of the assessee, subject only to the fact that the employee in this case having occupied the flat for 5 months only, i.e., from August, 1972, to December, 1972, only 5/12ths of the depreciation actually allowed will have to be considered as the value of the perquisite. Dr. Balasubramanian has, on the other hand, placed reliance on paragraph 18 of the Tribunal's order.
6. In our judgment the arguments advanced by Shri Dastur in this behalf are well-founded. Section 40A(5)(a) reads as under :
"(a) Where the assessee -
(i) incurs any expenditure which results directly or indirectly in the payment of any salary to an employee or a former employee, or
(ii) incurs any expenditure which results directly or indirectly in the provision of any perquisite (whether convertible into money or not) to an employee or incurs directly or indirectly any expenditure or is entitled to 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 :...."
7. It is clear from the language that the value of the perquisite will have to be -
(a) any expenditure incurred by the assessee which results directly or indirectly in the provision of any perquisite and
(b) any allowance in respect of the asset used by an employee.
8. In the above view of the matter, we are in agreement with Shri Dastur that the value of the perquisite will have to be taken as the amount actually spent by the assessee as expenditure on the flat occupied by its employee, Shri Swami, and 5/12ths of the depreciation allowed to the assessee in respect of the flat.
9. As regards the third question, counsel are agreed that, in view of our court's judgment in the case of CIT v. Indokem Pvt. Ltd. [1981] 132 ITR 125, the question will have to be answered in the negative and in favour of the assessee. The question is so answered.
10. This takes us to the only question referred to us at the instance of the Revenue. Here again, counsel are agreed that the issue involved in the question is covered by the Supreme Court's decision in the case of Vazir Sultan Tobacco Co., Ltd. v. CIT . It was, however, pointed out by Dr. Balasubramanian that the facts in this case are somewhat different from the facts in the Supreme Court's case . The facts herein, he stated, are identical with the facts in the case of CIT v. May and Baker (India) Pvt. Ltd., (Income-tax Reference No. 200 of 1977), in which our court, by its judgment dated March 12, 1991 - [1991] 192 ITR 239, reframed the question and answered it in a particular manner. Shri Dastur admits that it is so. Accordingly, following our judgment dated March 12, 1991, in Income-tax Reference No. 200 of 1977, [1991] 192 ITR 239, we reframe the question in this case as under :
"Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the amount of Rs. 24,72,002 (being the difference between Rs. 37,36,928 and Rs. 12,64,926) also accrued as a liability during the previous year under the Payment of Gratuity Act, 1972 ?"
and answer the reframed question in the affirmative and in favour of the assessee. However, as observed in that case, we would like to observe here also that, in view of our answer to the reframed question in the affirmative and in favour of the assessees, the Tribunal has to pass such orders as are necessary to dispose of the case conformable to such orders as are necessary to dispose of the case conformably to such judgment as provided in section 260(1) of the Act. In other words, it does not necessarily follow that the liability must be allowed as a deduction. If, in the meantime, as has happened in this case, certain provisions have come on the statute book which are applicable in the year under reference, the Tribunal will have to consider the assessee's claim in the light of such provisions while giving effect to our order under section 260(1).
11. The Tribunal's passing such an order under section 260(1), in our opinion, will be in conformity with the view taken by the Supreme Court.
12. No order as to costs.