Commissioner of Income Tax vs New India Maritime Agencies (P.) Ltd.

Subbulakshmy, J.—The question referred to us at the instance of the Revenue is as follows :

Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in law in holding that the expenditure incurred by the

assessee-company by way of property tax, urban land tax and towards maintenance of the properties owned by the company and given as

residential accommodation to its directors should not be considered for the purpose of disallowance u/s 40(c) of the Income Tax Act, 1961, for

the assessment years 1980-81 and 1982-83 ?

The Income Tax Officer took a stand that the expenditure incurred by the assessee amounts to perquisite to the directors to whom the residential

accommodation is provided. On appeal, the Commissioner of Income Tax (Appeals) deleted the disallowance. On further appeal by the Revenue,

the Tribunal dismissed the appeal, holding that no additional benefits are conferred on the directors, when the assessee-company pays the property

tax, urban land tax and also incurs expenditure on maintenance of the residential houses. When a similar issue came up for consideration before this

court, it was held by this court in Tax Case No. 1149 and 1150 of 1988, ( South India Corporation Agencies P. Ltd. Vs. Commissioner of

Income Tax, , that the property tax and the urban land tax incurred by the assessee should not be included for the purpose of disallowance u/s

40(c) of the Income Tax Act, 1961, and maintenance alone can be included for the purpose of disallowance.

In the decision reported in C.W.S. (India) Limited Vs. Commissioner of Income Tax, , while interpreting Section 40, the Supreme Court has

held as follows (page 655) :

If an asset belonging to the assessee say, for example, a furnished house--was placed in the possession and enjoyment of its employee and it was

being maintained by the assessee, there could be little doubt that any expenditure incurred on such asset/house was subject to the ceiling

prescribed therein. Similarly, if a house taken on rent by the assessee was furnished by the assessee and put in the possession and enjoyment if its

employee, the expenditure incurred in that behalf would equally have been subject to the ceiling in Section 40(c)(iii). Suppose, in another case, a

house owned by the assessee (furnished and maintained by the assessee) is similarly placed in the possession and enjoyment of the employee and

the assessee took on rent an air-conditioner and installed it in the said house, the whole expenditure would have been subject to the ceiling in

Section 40(c)(iii) ...

Following the abovesaid decision of the apex court and this court we hold that the expenditure incurred by the assessee-company by way of

property tax and urban land tax should not be considered for the purpose of disallowance u/s 40(c) of the Income Tax Act, 1961, and

maintenance alone can be included for the purpose of disallowance under the said Act.

We accordingly answer the question referred to us in the manner set out above in the light of the decision of the Supreme Court in C.W.S.

(India) Limited Vs. Commissioner of Income Tax, , referred to above. No costs.