Commissioner of Income Tax vs Birla Consultants Ltd.

Dr. B.P. Saraf, J.—By this reference u/s 256(1) of the Income Tax Act, 1961, at the instance of the Revenue, the Tribunal has referred the following question of law to this court for opinion :

"Whether, on the facts and in the circumstances of the case and in law, the Tribunal was justified in holding that while computing the value of perquisites, depreciation on furniture, flat, air-conditioners and refrigerators cannot be taken into account ?"

The relevant assessment years is assessment year 1974-75. The assessee is a company. It owns a Deluxe flat in the building known as II-Palazzo, Malabar Hill, Bombay - 6, covering an area of 2,840 sq. ft. During the relevant previous year in terms of the resolution of the board of directors of the company dated May 30, 1972, on and from July 1, 1972, a portion of the said flat comprising one bed room with common use of drawing and dining room was allowed to be used by one of its directors, Shri A. V. Birla. The area of the portion occupied by Shri Birla was one-third of the total area of the flat. While making assessment of the company for determining the salary, allowances, etc., paid to the directors, the Income Tax Officer determined a sum of Rs. 19,210 as value of the perquisite for use of the aforesaid flat which was computed as under :

"Total expenditure incurred by the assessee-company for repairs and maintenance, electricity and gas and ground rent of the portion only which is given to Shri A. V. Rs. 15,433 as worked out by the Income Tax Officer.

Rs. One-third of the above 5,143 Out of telephone expenses 2,000 Depreciation on furniture, flat air-conditioners and refrigerators Rs. 36,202 One-third thereof 12,067 -------- 19,210" ---------

The above order of the Income Tax Officer was confirmed by the Appellate Assistant Commissioner. The assessee appealed to the Income Tax Appellate Tribunal decided in favour of the assessee. It was held by the Tribunal that for computing the value of perquisite for the purpose of section 40A(5) of the Act, depreciation on furniture, flat, air-conditioners and refrigerators, etc., could not be taken into account. In that view of the matter, the Tribunal excluded the amount of Rs. 12,067 representing depreciation on furniture, flat, air-conditioners, refrigerators, etc., from the computed value of the perquisite for the purpose of the ceiling specified in section 40A(5) of the Act. On exclusion of the above amount, the value of the perquisites came down to Rs. 7,000 which was well within the permissible limit. Hence this reference at the instance of the Revenue.

We have heard learned counsel for the parties and considered their rival submissions. Section 40A, so far as relevant, as it stood at the material time reads :

"Section 40A(1) The provisions of this section shall have effect notwithstanding anything to the contrary contained in any other provision of this Act relating to the computation of income under the head "Profits and gains of business or profession"......

(5)(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 :

Provided that where the assessee is a company, so much of the aggregate of -

(a) the expenditure and allowance referred to sub-clauses (i) and (ii) of this clause; and

(b) the expenditure and allowance referred to sub-clauses (i) and (ii) of clause (c) of section 40, in respect of an employee or a former employee, being a director or a person who has a substantial interest in the company or a relative of the director or of such person, as is in excess of the sum of seventy-two thousand rupees, shall in no case be allowed as deduction :

Provided further that in computing the expenditure referred to in sub-clause (i) or the expenditure or allowance referred to in sub-clause (ii) of this clause or the aggregate referred to in the foregoing proviso, the following shall not be taken into account, namely :-

(i) the value of any travel concession or assistance referred to in clause (5) of section 10;

(ii) passage money or the value of any free or concessional passage referred to in sub-clause (i) of clause (6) of section 10;

(iii) any payment referred to in clause (iv) or clause (v) of sub-section (1) of section 36;

(iv) any expenditure referred to in clause (ix) of sub-section (1) of section 36. . . . . . .

(c) The limits referred to in clause (a) are the following, namely;

(i) in respect of the expenditure referred to in sub-clause (i) of clause (a), in the case of an employee, an amount calculated at the rate of five thousand rupees for each month or part thereof comprised in the period of his employment in India during the previous year, and in the case of a former employee, being an individual who cease or ceased to be the employee of the assessee during the previous year or any earlier previous year, sixty thousand rupees :

Provided that . . .

(ii) in respect of the aggregate of the expenditure and the allowance referred to in sub-clause (ii) of clause (a), one fifth of the amount of the salary payable to the employee or an amount calculated at the rate of one thousand rupees for each month or part thereof comprise in the period of employment in India of the employee during the previous year, whichever is less.''

Learned counsel for the Revenue submits that the Tribunal was not justified in excluding depreciation from the value of perquisite. We have considered the submission in the light of the language of section 40A(5)(a)(ii) of the Act. In our opinion, the appropriate expression which takes care of the depreciation allowance is the word "allowance" used in the latter part of the above clause. Similar controversy regarding interpretation of the expression "allowance" appearing in section 40(a)(v) of the Act came up for consideration before this court in Commissioner of Income Tax Vs. Yorkshire Insurance Co. Ltd., . Interpreting section 40(a)(v) of the Act, it was held by the Division Bench of this court (at page 568) :

"The words of section 40(a)(v) indicate that what shall not be deducted in computing income chargeable under the head of profits and gains of business and profession in the case of any assessee shall be, inter alia, any allowance in respect of assets of the assessee used by an employee. There is nothing in those words which can lead to the conclusion that an allowance in the form of a deduction for depreciation is not within the ambit of section 40(a)(v)."

The material words used in section 40(a)(v) and in the section 40A(5)(a)(ii) on this aspect are identical. The expression used in section 40A(5)(ii) is also "any allowance in respect of any assets of the assessee used by the employee. . . ." The two expressions being identical, the interpretation given by this court in the above referred decision squarely applies to the present case. We are, therefore, of the clear opinion that though depreciation on furniture, flat, air-conditioners and refrigerators cannot be treated as an expenditure resulting in the provision of any perquisite, it is liable to be considered as an allowance in respect of the assets of the assessee used by the employee. In that view of the matter, it will fall within the expenditure specified in section 40A(5)(a) of the Act and the limit specified therein shall apply. We, therefore, answer the question accordingly in favour of the Revenue and direct the Tribunal to modify its order in the light of our decision.

Learned counsel for the assessee made a faint attempt to draw a fine distinction between the provisions contained in section 40(a)(v) and section 40A(5)(a)(ii) of the Act with a view to satisfying us that the ratio of the above decision of this court which was rendered on the interpretation of section 40(a)(v) will not apply to the present case. We have compared the language of the two provisions. We do not find any material difference in the language of the two provisions so as to justify non-application of the ratio of the decision of this court to the present case. Mr. Jetly, learned counsel for the Revenue in this connection pointed out the latest decision of the Supreme Court in Commissioner of Income Tax, Bombay Vs. M/s. Indian Engineering and Commercial Corporation Pvt. Ltd., , where the Supreme Court has also observed that the relevant provisions of section 40(a)(v) and section 40A(5) are substantially similar.

In view of the foregoing discussion, the reference is disposed of accordingly and the question referred to us is answered in favour of the Revenue in the terms aforesaid.

No order as to costs.