The Commissioner Of Income-Tax vs The British Bank Of Middle East
2003 Latest Caselaw 499 Bom

JUDGMENT

S.H. Kapadia, J.

1. For the assessment Year 1983-84, the Department has come by way of Reference under Section 256(1) of the Income-tax Act for our opinion on the following three questions.

"(1) Whether on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the expenditure incurred on repairs, maintenance and insurance to assessee's owned accommodation provided to the employees is not perquisites within the meaning of Section 40A(5) of the Income-tax Act?"

2. In the case of Citibank N.A., Bombay v. C.I.T., Bombay City-III decided on 5/3/2003, vide Income-tax Reference No. 5 of 1994, this Court took the view that expenditure incurred by the assessee company on repairs and maintenance of flats owned by the assessee company and used for the residence of employees is a perquisite within the meaning of Section 40A(5) of the Income-tax Act. Therefore, to that extent, we answer Question No. 1 in the Negative i.e. in favour of the Department and against the Assessee.

However, it is argued on behalf of the assessee that in this case, the assessee has incurred expenditure by way of premium paid by the assessee for insuring the building in which the employees are housed. It was argued that insurance of the building was neither salary nor perquisite. It was argued that insurance cannot be treated expenditure on assets let out to the employees. It was argued on behalf of the assessee that Section 40A(5)(a)(ii) refers to expenditure incurred by the assessee in respect of any assets belonging to the assessee and used by its employee for his own purpose or benefit. It was argued that expenditure by way of premium was not an expenditure in respect of an asset belonging to the assessee and, therefore, it cannot be equated to repairs or maintenance of the building in which the employees reside. That, such expenditure is incurred to cover the risk and that it is not relatable to the assets belonging to the assessee. That, the concept of the insurance is to protect the assessee from incurring certain contingent liability in future which crystallizes in the event of such contingency happening. It was, therefore, submitted that expenditure incurred by the assessee company to insure the life of the building was not an expenditure in respect of any assets of the assessee and, therefore, Section 40A(5)(a)(ii) is not attracted. In support of the above argument, reliance is placed on the judgment of the Bombay High Court in the case of CIT v. Tata Oil Mills Co. Ltd. reported in 182 ITR 130. It was argued that in the case of repairs and maintenance, there is a value addition to the assets belonging to the assessee. That, by payment of premium for insuring the building, there is no such value addition. That, such payment is only to provide a cover against the risk of fire, theft, accident etc. and, therefore, such payment does not relate to the assets of the assessee and, therefore, it is not covered by Section 40(A)(a)(ii).

3. We do not find any merit in this argument. As held by us in our judgment in the case of Citibank N.A. Bombay v. CIT, Bombay - III (supra), Section 40A(5)(a)(ii) states that where the assessee incurs any expenditure in respect of any asset of the assessee used by the employee, the ceiling prescribed under Section 40A(5) stands attracted, the object being to disallow the expenditure by an employer beyond the prescribed ceiling. Section 40A(5) refers to disallowance in the hands of the employer. If this object is kept in mind, it is clear that any expenditure which results in provisions of any perquisite or any expenditure in respect of any asset of the assessee used by the employee would be subject to ceiling prescribed under Section 40A(5) of the Act as it stood at the relevant time. In our view, the judgment of the Bombay High Court in the case of CIT v. Tata Oil Mills Co. Ltd. (supra) has no application. In that case, the Directors were earlier entitled to payment of compensation, but during the Assessment Year in question, the assessee introduced a Scheme under which the company bought annuities which were encashable on the retirement of the employees. It was in that context that the matter came to be decided and it was held that the expenditure for purchase of annuities was not in respect of any of the assets of the assessee and, therefore, Section 40A(5)(a)(ii) was not attracted. That judgment has no application to the present case. In the present case, the building in which the employees reside has been insured. The premium paid is an expenditure incurred by the assessee in respect of the building owned by the assessee. The building is the asset of the assessee. Therefore, in our view, the expenditure incurred in insuring the building (asset) is covered by Section 40A(5)(a)(ii) of the Act.

Accordingly, the entire question No. 1 is answered in the Negative i.e. in favour of the Department and against the assessee.

"(2) Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the perquisites value of the car should be computed as per Rule 3(c) of the Income-tax Rules?"

4. In view of the judgment of the Supreme court in the case of CIT v. British Bank of Middle East reported in 251 ITR 217 (SC)?, this question is answered in the Negative i.e. in favour of the Department and against the assessee.

"(3) Whether on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the house rent allowance paid to the employees should not be considered as salary for the purpose of disallowance under Section 40A(5) of the Income-tax Act?"

5. In view of the decision of the Supreme Court in the case of CIT v. Mafatlal Gangabhai & Co. (P) Ltd. reported in 219 ITR 644 @ 651, the above question is answered in the Negative i.e. in favour of the Department and against the assessee.

6. Accordingly, the above Reference is disposed of with no order as to costs.