Brakes India Ltd. vs Commissioner of Income Tax

Thanikkachalam, J.—At the instance of the assessee, the Tribunal referred the following three questions for the opinion of this Court under s.

256(1) of the IT Act, 1961 :

Whether, on the facts and in the circumstances of the case, the limited deduction under s. 80VV is irrespective of the number of assessment years

to which the expenditure pertains and whether it also applies to fees paid for preparation of statements and schedules annexed to the return of

income ?

Whether, on the facts and circumstances of the case, the value of the benefit derived by the employee could be substituted for the expenditure

incurred by the assessee in assessing the disallowance under s. 40A(5) of the Act ?

Whether, on the facts and circumstances of the case, surtax is an allowable deduction in computing the total income of the assessee ?

Insofar as question No. 3 is concerned, the point that arises for consideration is whether surtax paid by the assessee can be claimed as a

deduction while computing the total income of the assessee under the IT Act ? Such a deduction is not possible in view of the decision of this

Court rendered in the case of Sundaram Industries Ltd. Vs. Commissioner of Income Tax, . Inasmuch as the order passed by the Tribunal is in

conformity with the above said decision cited supra, we answer the question referred to us in the negative and against the assessee.

Insofar as question No. 2 is concerned, the point for consideration is, whether the value of the benefit derived by the employee could be

substituted for the expenditure incurred by the assessee in assessing the disallowance under s. 40A(5) of the Act. A similar question came up for

consideration before this Court in the case of a sister concern in Wheels India Ltd. Vs. Commissioner of Income Tax, , wherein by a judgment, dt.

9th February, 1995, this Court held that actual amount paid by way of house rent allowance is assessable in the hands of the employer under ss.

40(c) and 40A(5) of the Act. Learned counsel appearing for the assessee in order to support his contention that the value of the benefit derived by

the employee could be substituted for the expenditure incurred by the assessee in assessing the disallowance under s. 40A(5) of the Act, in other

words, according to the assessee, since the perquisite value of the rent free house is taken at Rs. 1,800 only in the hands of the employee, the

same amount should be taken for the purpose of disallowance under s. 40A(5) also. Reliance was placed upon the decision of the Calcutta High

Court in the case of Commissioner of Income Tax Vs. Britannia Industries Co. Ltd., and the decision of this Court in the case of Commissioner of

Income Tax Vs. P.R. Ramakrishnan, . The abovesaid two decisions were also dealt with by this Court while rendering the judgment in T.C. No.

37 of 1983 (supra). The order passed by the Tribunal is in conformity with the abovesaid decision of this Court. Under such circumstances, in

view of the decision of this Court in T.C. No. 37 of 1983, dt. 9th February, 1995, we hold that there is no infirmity in the order passed by the

Tribunal on this aspect. Accordingly, we answer question No. 2 in the negative and against the assessee.

Insofar as question No. 1 is concerned, it relates to deduction claimed under s. 80VV of the Act. In computing the total income, the assessee

had deducted Income Tax appeal fees of Rs. 4,250 and tax representation and audit fees of Rs. 2,000 making a total of Rs. 6,250. Out of this

amount, only a sum of Rs. 5,000 was allowed as deduction under s. 80VV of the Act. The contention of the assessee was that part of this

expenditure may relate to earlier years and audit fees may not be regarded as expenditure incurred for the Income Tax proceedings which are

covered by s. 80VV. The Tribunal found that the audit fees referred to statements prepared for being annexed to IT returns and hence considered

it as expenditure falling within the scope of s. 80VV and, therefore, confirmed the disallowance.

Learned counsel for the assessee submitted before us that insofar as appeal fees of Rs. 4,250 is concerned, a portion of it would relate to the

earlier assessment years, but incurred in the accounting year relevant to the assessment year under consideration. Therefore, according to learned

counsel, the entire amount of Rs. 4,250 does not relate to this assessment year. Sec. 80VV states that in computing the total income of an

assessee, there shall be allowed by way of deduction any expenditure incurred by him in the previous year in respect of any proceedings before

any IT authority or the Tribunal or any Court relating to the determination of any liability under this Act, by way of tax, penalty or interest; provided

that no deduction under this section shall, in any case, exceed in the aggregate five thousand rupees. Therefore, expenditure incurred by the

assessee in the previous year in respect of any proceedings alone can be allowed to the extent of Rs. 5,000. Inasmuch as even according to the

assessee, Rs. 4,250 was incurred in the previous year, it can be allowable only under the present assessment year under consideration to the extent

of Rs. 5,000. Expenditure relating to the earlier years incurred in the previous year cannot be allowed, if such expenses were not incurred in the

previous year relevant to the assessment year under consideration. Further, the assessee has not given any break-up to show as to, what would be

the portion of expenditure that was related to the earlier years. Inasmuch as the assessee himself offered Rs. 4,250 as the expenditure incurred in

this year and claimed the same as deduction under s. 80VV, it is not possible to make a claim for not considering a portion of the same since it

belongs to the earlier years. Under such circumstances, inasmuch as the order passed by the Tribunal on this aspect was in conformity with the

provisions contained in s. 80VV of the Act, the order passed by the Tribunal is in order. The provisions of s. 80VV restricting the allowance to Rs.

5,000 would be applicable even for fees paid for preparation of statements and schedules annexed to the IT returns, since the expenditure was

incurred in a proceeding before the IT authority. Accordingly, we answer this question in the affirmative and against the assessee. No costs.