Employee residential building maintenance and depreciation count toward section 40A(5) disallowance, despite employee rent.

Expenditure on maintaining buildings provided for employees' residence, together with depreciation on those buildings, is includible when computing the disallowance ceiling under section 40A(5) of the Income-tax Act. The Kerala High Court followed binding Full Bench and later Division Bench authority to hold that such residential-building costs fall within the statutory computation, and receipt of rent or other consideration from employees for use of the employer's asset does not alter that position. The issue was answered in favour of the Revenue and against the assessee.

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Issues: Whether, for disallowance under section 40A(5) of the Income-tax Act, 1961, the expenditure incurred by the assessee for maintaining buildings provided for employees' residence and the depreciation thereon could be taken into account.

Analysis: The question was answered in the light of the binding Full Bench decision in Forbes, Ewart and Figgis (P.) Ltd., and the later Bench decision in Harrisons and Crossfield (India) Ltd. v. CIT. Those decisions treated the maintenance expenditure and depreciation attributable to buildings provided to employees as relevant for computing the ceiling on expenditure under the statutory provision. The receipt of rent or consideration from employees for use of the employer's asset was held to make no difference to that position.

Conclusion: The expenditure incurred for maintenance of the employee residential buildings and the depreciation thereon are includible for disallowance under section 40A(5); the question was answered in the affirmative, against the assessee and in favour of the Revenue.

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