1989 (10) TMI 28 - HC - Income Tax

Court allows disallowance of employer's building maintenance expenditure under Income-tax Act

The High Court upheld the Tribunal's decision, ruling that the entire expenditure incurred by the assessee for maintaining buildings provided for ... Business Expenditure, Ceiling On Perquisite Given To Employees Issues:Interpretation of sections 40(a)(v) and 40A(5)(b) of the Income-tax Act in relation to expenditure on buildings provided for employees' residence and depreciation thereon.Analysis:The case involved a question regarding the applicability of sections 40(a)(v) and 40A(5)(b) of the Income-tax Act in determining the disallowance of expenditure on buildings provided for employees' residence and depreciation thereon. The Income-tax Officer had applied these provisions to limit the expenditure incurred by the assessee for the maintenance of such buildings. The Commissioner of Income-tax (Appeals) had excluded maintenance expenses and depreciation on buildings from the disallowance under these sections. However, the Tribunal, in the appeals by the Revenue, upheld the Income-tax Officer's decision, leading to the reference of the question to the High Court.The High Court analyzed the relevant provisions of the Income-tax Act, specifically sections 40(a)(v) and 40A(5)(b), to determine the extent to which expenditure on assets used by employees should be considered for disallowance. The court emphasized that the provisions do not require the asset to be used by the employee without payment of consideration. The court referred to a previous decision in the assessee's case for the assessment year 1974-75, which clarified that the control is on the amount expended on an asset used by the employee for personal benefit, regardless of whether the employer receives consideration for such use.The court addressed the argument raised by the assessee regarding the collection of rent from employees for the buildings provided. It was established that the collection of rent, even at fair market value, does not preclude the assessing authority from considering the expenditure and depreciation on the buildings for the purpose of limiting the expenditure under the relevant statutory provisions. The court highlighted that the key factor is whether the employer incurred expenditure on assets used by employees for their benefit, which was evident in this case.Ultimately, the High Court upheld the Tribunal's decision, ruling that the entire expenditure incurred by the assessee for maintaining the buildings provided for employees' residence, along with depreciation, could be taken into account for the purpose of disallowance under sections 40(a)(v) and 40A(5)(b) of the Income-tax Act. The court answered the question referred in the affirmative, favoring the Revenue. The Income-tax References were disposed of accordingly, with a copy of the judgment to be forwarded to the Income-tax Appellate Tribunal.