Employer bungalow rent and maintenance for employees' residence fell outside section 40(c)(iii) for earlier assessment years.

Expenditure by an employer on rent and maintenance of bungalows provided for employees' residence was not a benefit, amenity or perquisite within section 40(c)(iii) for the assessment years 1965-66 and 1966-67. The unamended provision did not extend to expenditure relating to assets used by employees for their own purposes or benefit, and the later amendment widening the disallowance from 1 April 1969 could not be applied retrospectively. On that footing, the bungalow rent and maintenance expenses were outside the disallowance and were properly excluded.

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Issues: Whether, for the assessment years 1965-66 and 1966-67, expenditure incurred by the employer on rent and maintenance of bungalows taken for employees' residence constituted a benefit, amenity or perquisite within section 40(c)(iii) of the Income-tax Act, 1961.

Analysis: The relevant provision as it stood during the assessment years did not cover expenditure in respect of assets used by employees for their own purposes or benefit. The subsequent amendment, which introduced a wider disallowance with effect from 1 April 1969, could not govern the earlier assessment years under reference. Since the bungalows were rented and the maintenance expenses were incurred in relation to them, the disallowance was not sustainable under the unamended provision.

Conclusion: The expenses on bungalow rent and maintenance did not fall within section 40(c)(iii) for the assessment years in question and were rightly excluded from disallowance; the question was answered in the affirmative, in favour of the assessee.

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