Commissioner of Income Tax vs Travancore Tea Estates Co. Ltd.

K.S. Paripoornan, J.—At the instance of the Revenue, the Income Tax Appellate Tribunal has referred the following question of law, for the decision of this court, in the two referred cases :

"Whether, on the facts and in the circumstances of the case, the expenditure incurred by way maintenance of bungalows (assets of the assessee used by employees for their own purposes or benefit) occupied by its employees and the depreciation allowance in respect thereof could be taken into consideration for computing the disallowance to be made u/s 40(a)(v)/40A(5) of the Income Tax Act, 1961 ?"

The respondent is the same assessee in both the cases. The matter relates to the assessment years 1971-72 and 1972-73. The respondent is a limited company. In effecting the assessments, the Income Tax Officer restricted the allowance of perquisites and did not allow in full the deductions claimed for the expenditure incurred by the assessee-company. In particular, the Income Tax Officer restricted the aggregate of the expenditure met by the assessee-company on buildings and cars and depreciation on these assets to one-fifth of the salary of the concerned employee or Rs. 12,000, whichever is less, and disallowed the excess u/s 40A(5) of the Act. The Appellate Assistant Commissioner set aside the said portion of the order and accepted the plea of the assessee. In the further appeal filed by the Revenue, it was held by the Appellate Tribunal that the expenditure on the upkeep of the buildings could not be considered as part of the perquisites in the hands of the employees. It was also held that no portion of the depreciation on buildings would be a perquisite in the hands of any of the employees. It is thereafter, at the instance of the Revenue that the Income Tax Appellate Tribunal has referred the question of law, formulated hereinabove, for the decision of this court.

We heard counsel. In the light of the Full Bench decision of this court in Commissioner of Income Tax Vs. Forbes, Ewart and Figgis (P.) Ltd. and Harrison and Crossfield Ltd., and the subsequent decisions, inclusive of I. T. R. Nos. 439 to 443 of 1985, dated October 18, 1989 ( Harrisons and Crossfield (India) Ltd. Vs. Commissioner of Income Tax, ), we should hold that the Income Tax Officer was justified in invoking Section 40A(5) of the Income Tax Act and in effecting disallowance of the expenditure incurred by the assessee by way of maintenance of its buildings used by the employees for their own purposes and occupied by them and also the depreciation allowance in respect of such buildings. The Appellate Tribunal was not justified in taking a different view and in reversing the decision of the Income Tax Officer on that score.

Therefore, we answer the question referred to us in the affirmative, in favour of the Revenue and against the assessee.

A copy of this judgment under the seal of this court and the signature of the Registrar shall be forwarded to the Income Tax Appellate Tribunal, Cochin Bench.