Commissioner of Income Tax vs Simon Carves (I.) Ltd.

Suhas Chandra Sen, J.—The Tribunal has referred the following question of law to this court u/s 256(2) of the Income Tax Act, 1961 ("the Act") :

"Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the expenses incurred by the assessee for the maintenance of bungalows taken on rent for the use by the employees for their residence did not result in the provision of any benefit or amenity or perquisite to such employees within the meaning of Section 40(c)(iii) of the Income Tax Act, 1961 ?"

The reference relates to the assessment years 1965-66 and 1966-67.

While making the assessment, the Income Tax Officer applied the provisions of Section 40(c)(iii) of the Act to the assessee in respect of the rent and maintenance of the bungalows provided to the officers of the company.

The Appellate Assistant Commissioner was of the view that the provisions of Section 40(c)(iii) were amended with effect from the assessment year 1969-70, when it was provided for the first time that any expenses incurred by the employer for the maintenance of the assets used by the employees and the depreciation allowance in respect of such assets should be taken for the purpose of Section 40(c)(iii). The Appellate Assistant Commissioner directed the Income Tax Officer to recompute the disallowance u/s 40(c)(iii) without taking into account the bungalow and maintenance expenses for the purpose.

On appeal, the Tribunal held that the direction given by the Appellate Assistant Commissioner was correct. After considering the contentions of both the parties, the Tribunal held as follows :

"We, however, find no force in the said contention made on behalf of the department. Section 40(c)(iii) of the Income Tax Act, 1961, as it stood at the relevant time did not include the expenditure in respect of any assets of the assessee used by such employee either wholly or partly for his own purposes. It was only by the amendment which came into force from 1st April, 1969, that Section 40(a)(v) was introduced in the statute replacing Section 40(c)(iii) wherein it was provided that any expenditure or allowance in respect of any assets of the assessee used by such employee either wholly or partly for his own purposes or benefit and which expenditure exceeded one-fifth of the amount of salary payable to the employee, shall not be allowed as a deduction. In our opinion, therefore, the directions of the Appellate Assistant Commissioner in respect of the two years under consideration to recompute the disallowance u/s 40(c)(iii) after excluding the bungalow maintenance expenses, is well founded. Admittedly, the bungalows are not owned by the assessee-company but have been taken on rent and expenditure on such rented bungalows is incurred by the assessee for their maintenance. In the circumstances, no interference on the part of the Tribunal is called for."

It has not born shown how the Tribunal has committed any error of law. The Tribunal has given cogent reasons for coming to its conclusion.

Under the circumstances, the question referred to this court is answered in the affirmative and in favour of the assessee.

There will be no order as to costs.

Bhagabati Prasad Banerjee, J.

I agree.