1981 (4) TMI 112 - AT - Income Tax

Tribunal upholds CIT decisions on IT Act sections

The Tribunal dismissed the Department's appeal, upholding the CIT (Appeals) decisions on all grounds, including the inapplicability of Section 52(2) of ... - Issues Involved:1. Applicability of Section 52(2) of the IT Act, 1961 for capital gains on the sale of a flat.2. Determination of profit under Section 41(2) of the IT Act.3. Requirement of notice to the Valuation Officer (V.O.) under Section 55A of the IT Act.4. Treatment of reimbursement of medical expenses under Explanation 2(b) of Section 40A(5) of the IT Act.5. Inclusion of retirement gratuity for disallowance under Section 40A(5) of the IT Act.Issue-Wise Detailed Analysis:1. Applicability of Section 52(2) of the IT Act, 1961 for Capital Gains on the Sale of a Flat:The first ground concerns whether the provisions of Section 52(2) of the IT Act, 1961 are attracted in the case of the sale of a flat by the assessee to Mrs. P, the wife of one of the officers of the assessee company. The flat was sold at its written down value, which was significantly lower than the market value estimated by the Departmental Valuation Officer (V.O.). The CIT (Appeals) accepted the assessee's contention that Section 52(2) was not applicable as there was no understatement of consideration. The Department argued that the decision of the Bombay High Court in Babubhai M. Sanghvi's case was not relevant as it pertained to Section 12B of the Indian IT Act, 1922, and not Section 52(2) of the IT Act, 1961. The Tribunal upheld the CIT (Appeals) decision, stating that the provisions of Section 52(2) are not attracted in the absence of any finding of understatement of consideration.2. Determination of Profit under Section 41(2) of the IT Act:The second ground relates to the profit determined under Section 41(2) of the Act. The CIT (Appeals) held that the IAC could not determine the profit based on the estimated market value adopted for capital gains. The Tribunal agreed, stating that Section 41(2) contemplates the consideration of only the monies payable for the sale of assets and not any hypothetical market value. Thus, the addition of profit under Section 41(2) based on the market value was rejected.3. Requirement of Notice to the Valuation Officer (V.O.) under Section 55A of the IT Act:The Department raised an additional ground that the CIT (Appeals) erred in disposing of the appeal without issuing a notice to the V.O. as required under Section 55A of the IT Act. The Tribunal found no merit in this ground, stating that considering the question of lack of opportunity to the V.O. would be futile since the CIT (Appeals) had already found Section 52(2) inapplicable. Therefore, the necessity of determining the market value did not arise, and the additional ground was rejected as infructuous.4. Treatment of Reimbursement of Medical Expenses under Explanation 2(b) of Section 40A(5) of the IT Act:The fourth ground concerns whether amounts paid to employees as reimbursement of medical expenses amount to 'perquisite' under Explanation 2(b) of Section 40A(5) of the Act. The CIT (Appeals) followed the decision of the Special Bench of the Tribunal in M/s. Blackie & Sons (India) Ltd., holding that reimbursement of medical expenses does not amount to perquisite but should be treated as part of the salary. Since the General Manager's salary already exceeded Rs. 60,000, the addition of medical expenses reimbursement did not affect the disallowance under Section 40A(5). The Tribunal agreed with the CIT (Appeals) and rejected the Department's objection.5. Inclusion of Retirement Gratuity for Disallowance under Section 40A(5) of the IT Act:The fifth ground pertains to whether retirement gratuity should be considered for disallowance under Section 40A(5). The CIT (Appeals) held that only the amount of gratuity in excess of the exemption under Section 10(10) should be considered. The Tribunal upheld this decision, stating that gratuity is part of the salary for the purpose of limiting expenditure under Section 40A(5), but only the amount exceeding the exemption under Section 10(10) should be included. The Tribunal also agreed that separate limits apply for payments to an employee during the period of service and to a former employee after cessation of employment.Conclusion:The Tribunal dismissed the Department's appeal, upholding the CIT (Appeals) decisions on all grounds. The Tribunal also acknowledged the considerable assistance provided by the counsel for both the assessee and the Department.