1995 (2) TMI 8 - HC - Income Tax

Summary

Issues:
1. Interpretation of provisions under section 80VV for expenses incurred by the applicant.
2. Consideration of actual expenditure on house rent of employees for disallowance under section 40(c)/40A(5).

Analysis:
The case involved a dispute regarding the interpretation of provisions under section 80VV and the consideration of actual expenditure on house rent of employees for disallowance under section 40(c)/40A(5) of the Income-tax Act, 1961. The assessee contended that only the income-tax valuation of rent-free accommodation should be considered, not the actual rent paid. The Commissioner and the Tribunal disagreed, stating that the actual expenditure on house rent should be taken into account. The Tribunal rejected the assessee's claim, emphasizing that the actual expenditure, not just the perquisite value, should be considered under the relevant sections.

The assessee argued before the High Court that only ten percent of the salary payable to the employee should be considered for house rent allowance, citing rule 3 of the Income-tax Rules. The Department, however, contended that the actual expenditure incurred by the assessee in respect of house rent allowance should be the basis for assessment under sections 40(c) and 40A(5), without the application of rule 3. The Department relied on various decisions to support its stance, emphasizing the employer's expenditure as the relevant factor for assessment.

The High Court referred to the decision in CIT v. Shriram Refrigeration Industries Ltd., where it was held that the actual amount paid by the employer as house rent allowance should be assessed, not a percentage of the rent. The Court also cited other cases to support the view that the value of the perquisite in the hands of the employer should be based on the actual expenditure, not limited to the income-tax valuation. The Court highlighted the distinction between assessing the employee's perquisite and determining the employer's liability under the relevant sections.

Additionally, the Court discussed the decision in CIT v. Nuchem Plastics Ltd., where the Punjab and Haryana High Court held that the value of the perquisite should be based on the actual amount paid, in line with the decisions of other High Courts. Considering the consistent interpretation by various High Courts, the Court upheld the Tribunal's decision that the actual amount paid as house rent allowance is assessable in the hands of the employer under sections 40(c) and 40A(5). The Court ruled in favor of the Department, affirming the assessment based on actual expenditure.