Employer disallowance for car perquisites must follow actual expenditure, not the employee's perquisite valuation.

For disallowance under section 40(c) of the Income-tax Act, the assessable value of a car-related perquisite in the employee-director's hands is not the controlling measure for the employer's computation. The court applied the distinction between the employer-assessee and the employee-assessee and held that, where the provision is pari materia with section 40A(5), the employer's disallowance must be determined independently on the basis of actual expenditure rather than the valuation used for the employee's salary assessment. The question was answered in the negative, in favour of the Revenue and against the assessee.

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Issues: Whether, for disallowance under section 40(c) of the Income-tax Act, 1961, the value of the benefit or amenity in respect of car expenses in the hands of the employer had to be restricted to the assessable value of the perquisite in the hands of the employee-director.

Analysis: The question was treated as one of law and was answered by applying the distinction between the employer-assessee and the employee-assessee. On the authority governing section 40A(5) and rule 3 of the Income-tax Rules, 1962, the valuation of perquisites for the employee's salary assessment was held to be irrelevant for computing the employer's disallowance, because the employer's deduction must be determined on the basis of actual expenditure. Since section 40(c) is substantially pari materia with section 40A(5), the same principle was held applicable.

Conclusion: The value of the perquisite in the hands of the employee-director is not the controlling measure for disallowance under section 40(c); the question was answered in the negative, in favour of the Revenue and against the assessee.

Ratio Decidendi: Where the statutory provision governing the employer's disallowance is pari materia with the provision considered by the Supreme Court, the valuation of a perquisite for the employee's salary assessment does not govern the employer's computation, which must be made independently on the basis of the employer's actual expenditure.

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