Property tax and urban land tax on directors' accommodation fall outside section 40(c) disallowance, while maintenance does not.

Expenditure on property tax and urban land tax paid in respect of residential accommodation provided to directors did not amount to a benefit or perquisite and was therefore outside the disallowance under section 40(c) of the Income-tax Act, 1961. The court treated such taxes as costs that merely preserve the property rather than confer a personal advantage on directors, following its earlier view and the Supreme Court's interpretation of section 40. Maintenance expenditure on the accommodation, however, was includible within the statutory ceiling. The reference was answered in favour of the assessee and against the Revenue.

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Issues: Whether expenditure incurred by the assessee-company towards property tax, urban land tax and maintenance of residential accommodation provided to its directors was liable to be included for disallowance under section 40(c) of the Income-tax Act, 1961.

Analysis: The expenditure on property tax and urban land tax was held not to confer any additional benefit or perquisite on the directors, and therefore it could not be brought within the disallowance contemplated by section 40(c). The Court followed the earlier view of the same High Court and the Supreme Court's interpretation of section 40, which distinguished between expenditure that merely preserves the asset and expenditure that constitutes a benefit subject to the statutory ceiling.

Conclusion: The expenditure by way of property tax and urban land tax was not includible for disallowance under section 40(c) of the Income-tax Act, 1961, while maintenance expenditure alone was includible. The reference was answered in favour of the assessee and against the Revenue.

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