Company car use by directors treated as perquisite, so expense disallowance in the company's hands was deleted.

Company-owned cars used by directors were held to give rise to a perquisite in the directors' hands, not an automatic disallowance of motor car expenses or related depreciation in the company's assessment. The Tribunal applied its earlier view and the Madras High Court ruling relied on by the assessee, noting that disallowance was unwarranted in the absence of evidence that statutory limits were exceeded or that the expenditure was not incurred for the company's business. On that basis, the partial disallowance sustained by the lower authorities was rejected and the additions were deleted.

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Issues: Whether the disallowance of motor car expenses and depreciation on the footing that the cars were used by directors for personal purposes was sustainable in the hands of the company, or whether such use was to be treated as a perquisite in the hands of the directors.

Analysis: The Tribunal followed its own earlier view and the Madras High Court decision relied upon in support of the assessee. It accepted that where company cars are used by directors, the benefit is attributable to the directors as a perquisite and does not justify a disallowance in the company's assessment in the absence of a showing that any statutory limits were exceeded or that the expenditure was otherwise unsupported by the business of the company. On that basis, the reasoning of the lower authorities sustaining a partial disallowance was not accepted.

Conclusion: The disallowance of car expenses and the consequential depreciation disallowance were deleted, in favour of the assessee.

Ratio Decidendi: Where company-owned cars are used by directors, such use does not by itself warrant disallowance in the company's assessment if the benefit is properly referable to the directors as a perquisite and no statutory restriction or excessiveness is established.

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