TaxTMI 
TaxTMI 
1979 (11) TMI 61
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....e assessee, his wife and children. As managing director of the concerns above mentioned and as partner of the managing agents of Madras Aluminium Company Ltd., the assessee was in receipt of a perquisite by way of the use for his personal purposes of cars and telephone belonging to the company. It appears that in the assessments of Jayalakshmi Mills Ltd., a portion of the expenses claimed by it on the maintenance of the cars maintained by the company was disallowed on the ground that the car was being used for the personal purposes of one of the directors. Similarly, in the case of Ramakrishna Industries Ltd, a portion of the car expenses is well as a portion of the telephone expenses were disallowed. When this came to the knowledge of the ITO assessing the present assessee, he was of opinion that the original assessment which had been made on the assessee for the various years under appeal required to be reopened and the amounts disallowed in the hands of the company should be included in these assessments as the value of perquisites forming an addition to the remuneration received by the assessee. The amounts thus included in the reassessments are as follows : ----------------....
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.... a telephone would not have cost more than Rs. 75 per month had he maintained it exclusively to satisfy the needs of his family and himself. In other words, at the most, the sum of Rs. 6,000 and Rs. 900 could have been treated as perquisites by way of motor car and telephone enjoyed by the assessee at the expense of the various companies Having arrived at this figure, the AAC took note of the fact that for the assessment years 1967-68,1968-69 and 1969-70 additions of Rs. 1,250, Rs. 1,500 and Rs. 2,000, 40801 respectively, had been made on the same ground in the assessments of the family. He was, therefore, of opinion that the additions to be retained by way of perquisites in the hands of the assessee for the assessment years 1967-68, 1968-69 and 1969-70 should be restricted to Rs. 5,650, Rs. 5,400 and Rs. 4,900, respectively. For the assessment years 1970-71 and 1971-72 he restricted the inclusion to Rs. 6,900 each and reduced the disallowances made by the ITO by Rs. 8,865, Rs. 8,263 and Rs. 8,100, respectively. Copies of the orders passed by the AAC are annexs. " B " and " B-1 " and form part of the statement of case. 4. The department preferred appeals to the Tribunal. Its con....
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....le and hence not allowable entirely tinder s. 40(c)(i) or (ii). In that case, the Tribunal stated, so far as the director was concerned, he had not received any personal benefit or amenity and he had the use of the company's conveyance only for the company's purposes, and, therefore, there may be an amount disallowable under s. 40(c) but there was no corresponding perquisite taxable in the hands of the director. The Tribunal stated that, quite apart from the discussion of the matter as one of principle, it was clear that on the facts what the AAC had done was quite correct. It then observed as under : " It is common ground that in the cases of the various companies a disallowance of a proportionate part of the expenditure incurred on conveyance and telephones has been made on the ground that an element of personal use by the director is involved. The disallowance was made as a matter of estimate and without any precise information or investigation into the exact use made by the director of each of the companies' car or telephone. It was a general ad hoc disallowance on an estimated basis and the companies, in the absence perhaps of sufficient material regarding the actual extent....
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....wn as an automatic formula that the amount disllowed in the hands of the company should be taxed as perquisite in the hands of the director." 6. There was also a contention by the departmental representative that the AAC was wrong in excluding the amount taxed in the hands of the HUF in the computation of perquisites assessable in the hands of this assessee. The Tribunal did not accept this contention stating as under : " Once it is found, as has been done by the Appellate Assistant Commissioner, that the assessee would have reasonably required to spend about Rs. 6,000 on conveyance and Rs. 900 on phone for his personal purposes having regard to the requirements of himself and his small family it follows that the maximum perquisite on which he can be taxed must be limited to the above amount. Whether the perquisite was allowed by one company or by a number of companies and whether allowed to him in his individual capacity or the karta of the family, the benefit enjoyed by the assessee cannot exceed the total amount required to be spent by him for personal purposes on conveyance and on phone. We, therefore, uphold the order of the Appellate Assistant Commissioner in this respe....
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....ncluded in the assessment of the HUF consisting of himself, his wife and children. The assessee had the use, for personal purposes, of motor car and telephone belonging to the company. In the assessments of M/s. Jayalakshmi Mills Ltd., a portion of the expenses claimed by it on the maintenance of the motor cars was disallowed on the ground that one of its cars was being used for the personal purposes of one of the directors. Similarly, in the case of M/s. Ramakrishna Industries Ltd., a portion of the motor car expenses and a portion of the telephone expenses were disallowed. The ITO had originally assessed the assessee. Subsequently, when it came to his knowledge that there was disallowance in the hands of the firm or companies which had spared the use of the motor car or the telephone, the ITO was of the opinion that the original assessment required to be reopened so as to assess the amounts disallowed in the hands of the company as the income or perquisite of the assessee. The various amounts that were added for the relevant years are set out in the form of a table by the Tribunal. It is unnecessary to burden our judgment with the repetition of those figures. The assessee appeale....
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....nt for our present purpose. The provision, in so far as it is material, runs as follows : " 'income' includes-- . ......... (iv) the value of any benefit or perquisite, whether convertible into money or not, obtained from a company either by a director or by a person who has a substantial interest in the company, or by a relative of the director or such person, and any sum paid by any such company in respect of any obligation which, but for such payment, would have been payable by the director or other person aforesaid," The extent of the income that is sought to be taxed under this provision is the value of any benefit or perquisite obtained from the company or any sum paid by the company in respect of any obligation which, but for such payment, would have been payable by the director. We are concerned with the later part of sub-cl. (iv) dealing with the sum paid by the company in respect of any obligation which, but for such payment, would have been payable by the director. The meaning of the words" which but for such payment, would have been payable by the director" would, prima facie, quantify the amount at an estimated figure of what the director would have spent havi....
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....person having substantial interest in the company. The Explanation has been brought in, as would be clear from its language, only for the purpose of warding off any argument of double taxation by reason of the disallowance in the hands of the company and by reason of the amount being taxed in the hands of the director or other person concerned. From a reading of cl. (c) of s. 40, it would be clear that it applies only to a case where the person concerned is either a director or has substantial interest in the company or his relative. In the present case, we are concerned with sub-cl. (ii) of s. 40(c) because the motor cars and telephones are found to be the assets of the company. The expenditure has been incurred by the company on the motor cars as well as the telephones. In such a case, the ITO must apply his mind to find out whether the expenditure is excessive or unreasonable having regard to the legitimate business needs of the company and the benefit derived by or accruing to it therefrom. It would, thus, be clear from s. 40(c) that it applies only to a case where excessive expenditure had been incurred by the company with reference to its assets which were used by the dire....
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.... the disallowance in the hands of the company. As the standards are different, it may even be conceivable that a director may be assessed on a larger figure than what has been disallowed in the hands of the company as the officer assessing the company may have been more liberal in applying s. 40(c) to the company, or he may not have disallowed at all anything under s. 40(c). His failure to apply s. 40(c) cannot rule out the assessment on the director, based on s. 2(24)(iv). It is not always that the ITO assessing the company is the same person who assesses the director. One may fail to refer to the other. Thus, though we would not exclude the assessment on the company applying s. 40(c) as irrelevant, we would not accept the stand of the revenue in this case to the effect that the director's assessment must be based on the disallowance in the hands of the company. The result is that the first question referred is answered in the affirmative and in favour of the assessee. On the second question the problem arises in this manner. It has already been seen that the assessee is also the karta of a HUF consisting of himself and others. The family was in receipt of some benefit by the p....