1996 (12) TMI 97 - AT - Income Tax

Assessment Year Cash Payments Expenditure Incurred House Rent Allowance Income Tax Rules Medical Expenses

Issues Involved:

1. Disallowances under section 40A(5)/40(c)
2. Disallowance of 15% of expenses on seminars, conferences, etc., as entertainment expenses under section 37(2A)
3. Disallowance of interest of Rs. 7,08,000
4. Rejection of the claim for depreciation @ 30% on electrical installation
5. Rejection of the contention that 'road' should be treated as 'plant'

Issue-wise Detailed Analysis:

Ground No. 1(a): Disallowances under section 40A(5)/40(c)
The assessee-company offered Rs. 9,87,788 for taxation under section 40A(5)/40(c). The Assessing Officer (AO) considered directors as employees under section 40A(5), not section 40(c). Medical expenses, HRA, flat maintenance charges, and servant allowance were not correctly considered, leading to a revised disallowance of Rs. 15,16,542. The AO added Rs. 3 lakhs for perquisite value of car and driver, totaling Rs. 17,69,892. Additionally, Rs. 2,95,072 for directors' disallowance and Rs. 1,83,000 for foreign travel expenses were included, making a total disallowance of Rs. 22,47,877.

Ground No. 1(b): Valuation of Perquisite for Car
The matter is concluded by the Bombay High Court in Bombay Burmah Trading Corpn. Ltd v. CIT, which states that the entire expenditure incurred by the employer must be taken into account for disallowance under section 40(c)(iii). Hence, the disallowance has to be worked out accordingly.

Ground No. 1(c): House Rent Allowance (HRA)
The AO included actual HRA, flat maintenance expenses, and servant's allowance in the disallowance under section 40A(5). The CIT(A) confirmed this. The Kerala High Court in Toshiba Anand Lamps Ltd.'s case held that HRA is part of salary, not a perquisite or amenity. Therefore, HRA should be considered part of salary for disallowance under section 40A(5).

Ground No. 1(d): Flat Maintenance
The Bombay High Court in Lubrizol India Ltd.'s case held that expenditure on flat maintenance should be considered for disallowance under section 40A(5). The Supreme Court affirmed this view in C.W.S. (India) Ltd.'s case. Thus, expenditure on flat maintenance is disallowable under section 40A(5).

Ground No. 1(e): Servant Allowance
The Tribunal in the assessee's own case for assessment year 1983-84 held that the entire expenditure on servant's salary should be considered for disallowance under section 40A(5), following the Bombay High Court's decision in Bombay Burmah Trading Corpn. Ltd.'s case. Therefore, this ground is rejected.

Ground No. 1(i): Constitutional Validity of Sections 40A(5) and 40(c)
The Tribunal, being a creature of the Income-tax Act, cannot deal with the constitutionality of these sections. Hence, this ground is rejected.

Ground No. 2(a): Disallowance of 15% of Expenses on Seminars and Conferences
The AO disallowed 15% of Rs. 84,833 incurred on seminars and conferences as entertainment expenditure. The CIT(A) upheld this disallowance, following the appellate order in the assessee's own case for the preceding year. The Tribunal also upheld this disallowance based on its earlier orders for assessment years 1982-83 and 1983-84.

Ground No. 2(b): Constitutionality of Section 37(2A)
The Tribunal cannot entertain this ground as it is not entitled to deal with the constitutionality of a provision under the I.T. Act. Hence, this ground is rejected.

Ground No. 3: Disallowance of Interest of Rs. 7,08,000
The AO disallowed the interest claimed by the assessee, which was upheld by the CIT(A) due to lack of acceptable arguments or authority from the assessee. The Tribunal also rejected this ground, stating that income-tax payable or paid cannot be allowed as a deduction, including interest under the Act.

Ground No. 4: Depreciation on Electrical Installations
The assessee claimed 30% depreciation on electrical installations, but the AO allowed only general rates. The CIT(A) upheld the AO's decision due to lack of acceptable arguments or authority. The Tribunal confirmed this disallowance, as the assessee did not provide particulars of assets entitled to 30% depreciation.

Ground No. 5: Treatment of 'Road' as 'Plant'
The assessee's contention that 'road' should be treated as 'plant' was rejected based on the Tribunal's earlier decision for assessment year 1984-85 and a recent Supreme Court decision. Hence, this ground is also rejected.

Conclusion:
All grounds raised by the assessee were rejected, and the appeal was dismissed.

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