1979 (11) TMI 61 - HC - Income Tax

High Court clarifies value of perquisites for assessee not linked to disallowed amount.

The High Court upheld the Tribunal's decision that the value of perquisites to be assessed in the hands of the assessee need not be the amount disallowed ... Capital Employed, Industrial Undertaking, Per Annum, Provision For Exemption Issues Involved:1. Whether the value of perquisites to be assessed in the hands of the assessee should be the amount disallowed in the assessments of the companies under section 40(c).2. Whether the amount assessed under section 2(24)(iv) in the hands of the Hindu undivided family (HUF) as a perquisite obtained from a different company should be excluded in computing the value of perquisites to be assessed in the individual assessment of the assessee.Issue-wise Detailed Analysis:1. Value of Perquisites to be Assessed:The primary issue was whether the value of perquisites to be assessed in the hands of the assessee should be the amount disallowed in the assessments of the companies under section 40(c). The Tribunal held that the company and the employee are two different assessable entities. Disallowance of expenditure on conveyance or telephone in the hands of the company under sections 37(1), 38(2), or 40(c) does not automatically mean that there is a taxable perquisite in the hands of the director. The Tribunal noted that it is theoretically possible for an amount to be disallowed under section 40(c) without there being a corresponding taxable perquisite in the hands of the director. For instance, a company might provide a car for business purposes, and the ITO might find the expenditure excessive. In such a case, the director does not receive any personal benefit, and thus, there is no taxable perquisite.The Tribunal emphasized that the benefit derived by the assessee should be the guiding factor. The AAC had estimated the reasonable expenditure for personal use of a car and telephone at Rs. 6,000 and Rs. 900 per year, respectively. The Tribunal upheld this estimation, stating that the perquisite should be limited to this amount. The Tribunal concluded that the assessee's tax liability should not be influenced by the disallowance made in the company's hands, as the standards for disallowance under section 40(c) and the assessment of perquisites under section 2(24)(iv) are different.2. Exclusion of Amount Assessed in HUF:The second issue was whether the amount assessed under section 2(24)(iv) in the hands of the HUF should be excluded in computing the value of perquisites in the individual assessment of the assessee. The Tribunal upheld the AAC's decision to exclude the amounts already taxed in the hands of the HUF. The AAC had determined that the assessee would have reasonably spent about Rs. 6,000 on conveyance and Rs. 900 on the phone for personal purposes. Therefore, the maximum perquisite on which the assessee could be taxed should be limited to these amounts. The Tribunal agreed that whether the perquisite was allowed by one company or multiple companies, and whether it was allowed to the individual or the HUF, the benefit enjoyed by the assessee could not exceed the total amount required for personal purposes.The High Court affirmed the Tribunal's decision, stating that the needs of the individual and the family are the same, and it is necessary to consider the benefit received from another company by the family when estimating the expenses. The court concluded that the estimate should be based on the needs of the members and not on the number of assessable units. Therefore, the second question was answered in the affirmative, in favor of the assessee.Conclusion:The High Court upheld the Tribunal's decision, affirming that the value of perquisites to be assessed in the hands of the assessee need not be the amount disallowed in the assessments of the companies under section 40(c). Additionally, the court agreed that the amount assessed in the hands of the HUF should be excluded when computing the value of perquisites in the individual assessment of the assessee. The judgment emphasized the importance of assessing perquisites based on the actual benefit derived by the assessee rather than the disallowance made in the company's hands.