Madras H.C : Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the expenditure incurred by the assessee- company by way of property tax, urban land tax and towards maintenance of the properties owned by thecompany and given as residential accommodation to its directors should not be considered for the purpose of disallowance under s. 40(c) of the IT Act, 1961 for the asst. yrs. 1980-81 and 1982-83 ?

High Court Of Madras

CIT vs. New India Maritime Agencies (P)Ltd.

Section 40(c)

Asst. Years 1980-81, 1982-83

R. Jayasimha Babu & Mrs. A. Subbulakshmy, JJ.

Tax Case Nos. 140 & 141 of 1997

13th July, 1998

Counsel Appeared

C.V. Rajan, for the Applicant : P.P.S. Janaradhanaraja, for the Respondent

JUDGMENT

MRS. A. SUBBULAKSHMY, J. :

The question referred to us at the instance of the Revenue is as follows : “Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the expenditure incurred by the assessee- company by way of property tax, urban land tax and towards maintenance of the properties owned by thecompany and given as residential accommodation to its directors should not be considered for the purpose of disallowance under s. 40(c) of the IT Act, 1961 for the asst. yrs. 1980-81 and 1982-83 ?” The ITO took a stand that the expenditure incurred by the assessee amounts to perquisite to the directors to whom the residentialaccommodation is provided. On appeal, the CIT(A) deleted the disallowance. On further appeal by the Revenue, the Tribunal dismissed the appeal, holding that no additional benefits are conferred on the directors, when the assessee- company pays the property tax, urban land tax and also incurs expenditure on the maintenance of the residential houses. When a similar issue came up for consideration before this Court, it was held by this Court in T.C. Nos. 1149 and 1150 of 1988 [reported as South India Corporation Agencies (P) Ltd. vs. CIT (1998) 147 CTR (Mad) 476] that the property tax and the urban land tax incurred by the assessee should not be included for the purpose of disallowance under s. 40(c) of the IT Act, 1961 and maintenance alone can be included for the purpose of disallowance.

2. In the decision in C.W.S. (India) Ltd. vs. CIT (1994) 118 CTR (SC) 118 : (1994) 208 ITR 649 (SC) : TC 18R.625, while interpreting s. 40 the Supreme Court has held as follows : “If an asset belonging to the assessee— say, for example, a furnished house—was placed in the possession and enjoyment of its employee and it was being maintained by the assessee, there could be little doubt that any expenditure incurred on such asset/house was subject to the ceiling prescribed therein. Similarly, if a house taken on rent by the assessee was furnished by the assessee and put in possession and enjoyment of its employee, the expenditure incurred in that behalf would equally have been subject to the ceiling in s. 40(c)(iii). Suppose, in another case, a house owned by the assessee (furnished and maintained by the assessee) is similarly placed in the possession and enjoyment of the employee and the assessee took on rent an air-conditioner and installed it in the said house, the whole expenditure would have been subject to the ceiling in s. 40 (c) (iii)…..” Following the abovesaid decision of the apex Court, and this Court we hold that the expenditure incurred by the assessee-company by way of property tax and urban land tax should not be considered for the purpose of disallowance under s. 40(c) of the IT Act, 1961, and maintenance alone can be included for the purpose of disallowance under the said Act. We accordingly answer the question referred to us in the manner set out above in the light of the decision of the Supreme Court in CWS (India) Ltd. vs. CIT referred to above. No costs.

[Citation : 246 ITR 344]

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