Commissioner Of Income-Tax vs Raunaq And Co. Pvt. Ltd.
2003 Latest Caselaw 229 Del

JUDGMENT

D.K. Jain, J.

1. At the instance of the Revenue, in respect of the assessment year 1974-75, the Income-tax Appellate Tribunal (for short "the Tribunal") has referred under Section 256(1) of the Income-tax Act, 1961 (for short "the Act"), the following question for our opinion :

"Whether, on the facts and in the circumstances of the case, the value of benefit or amenity relating to expenses on car for the purpose of applying the provisions of Section 40(c) of the Income-tax Act has to be restricted to the assessable value of such benefit or amenity as perquisite in the hands of the employee-director ?"

2. We have heard learned counsel for the Revenue. There is no appearance on behalf of the assessed.

3. As is evident from the format of the question, the issue raised by the Revenue is purely legal and, therefore, we deem it unnecessary to state the facts. Suffice it to note that the issue involved is as to whether for the purpose of computing the disallowance under Section 40(c) of the Act in the hands of the employer, the value of the perquisite has to be taken as the same amount which has been determined in the hands of the employee in accordance with the relevant rules or on the basis of the actual amount paid to the employee.

4. The issue raised is no more res integra. A similar question came up for consideration of the apex court in CIT v. British Bank of Middle East [2001] 251 ITR 217, wherein while dealing with the question of disallowance of excess expenditure incurred by an employer on an employee, under Section 40A(5) of the Act, their Lordships of the Supreme Court have observed that Section 40A(5) and Rule 3 of the Income-tax Rules, 1962, deal with different sets of assesseds--one dealing with the employer-assessed and the other with the employee-assessed. Rule 3 deals with valuation of the perquisites or benefits for the purposes of computing the income of the employee chargeable under the head "Salaries", whereas Section 40A(5) deals with computation of income under the head "Profits and gains of business" of the employer. It is further observed that there is no anomaly in applying Section 40A(5), while making the assessment of the employer-assessed. Rather it will be clearly wrong to apply Rule 3, which applies qua the employee, because the said rule cannot provide the figures of actual expenditure. It has, thus, been held that the computation of the value of such perquisite or benefit in the hands of the employee is not relevant for the purpose of Section 40A(5) of the Act.

5. In view of the said authoritative pronouncement and bearing in mind the fact that the provisions of Section 40(c) are substantially in pari materia with the provisions of Section 40A(5), the question referred is answered in the negative, i.e., in favor of the Revenue and against the assessed.

6. The reference stands disposed of with no orders as to costs.