Deferred sales-tax converted into loan is treated as paid for section 43B, while accommodation valuation follows employer cost basis.

For section 40A(5), rent-free accommodation provided to a general manager was to be valued by reference to the employer's actual expenditure on the accommodation, not the perquisite value used under section 17, and the disallowance was sustained. For section 43B, sales-tax liability covered by an eligible State deferred payment scheme and converted into a loan was treated as deemed paid in the year of conversion, so the deduction could not be denied on that basis and the addition was deleted. The text thus distinguishes the valuation of employer-provided accommodation from the tax treatment of deferred sales-tax converted into loan under a recognised scheme.

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Issues: (i) Whether, for the purpose of disallowance under section 40A(5), the rent-free accommodation provided to a general manager was to be valued with reference to the employer's actual rent expenditure or the perquisite value adopted under section 17; (ii) whether sales-tax liabilities covered by a State deferred payment scheme and converted into a loan were disallowable under section 43B.

Issue (i): Whether, for the purpose of disallowance under section 40A(5), the rent-free accommodation provided to a general manager was to be valued with reference to the employer's actual rent expenditure or the perquisite value adopted under section 17.

Analysis: The proviso to section 40A(5) required the expenditure incurred by the employer to be taken into account for perquisites. The issue was treated as covered by the Delhi High Court decision relied upon in the appeal, which held that the employer's actual expenditure on residential accommodation was the relevant amount for section 40A(5).

Conclusion: The disallowance under section 40A(5) was upheld and this issue was decided against the assessee.

Issue (ii): Whether sales-tax liabilities covered by a State deferred payment scheme and converted into a loan were disallowable under section 43B.

Analysis: The State scheme and the amended sales-tax provision treated the deferred sales-tax liability, upon grant of eligibility and conversion into loan, as deemed to have been paid. The Board's circulars clarified that such deferral schemes, including those implemented through Government orders, met the requirements of section 43B and that the converted amount could be allowed as deduction in the year of conversion. On that basis, the sales-tax amount was treated as paid for section 43B purposes.

Conclusion: The addition under section 43B was deleted and this issue was decided in favour of the assessee.

Final Conclusion: The appeal succeeded only on the sales-tax deferral issue, while the disallowance relating to rent-free accommodation was sustained, resulting in a partial allowance of the appeal.

Ratio Decidendi: For section 43B, a deferred sales-tax liability that is statutorily or administratively converted into a loan under an eligible State scheme is to be treated as discharged or paid in the year of conversion; for section 40A(5), the employer's actual expenditure on accommodation remains the relevant basis for valuation.

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