TMI Blog1994 (3) TMI 1X X X X Extracts X X X X X X X X Extracts X X X X ..... ame into force in its place. Both the provisions were substantially similar. Indeed, section 40(a)(v) was preceded by section 40(c)(iii) which was, of course, applicable only to companies and not to other assessees. Section 40(c)(iii) introduced by the Finance Act, 1963, with effect from April 1, 1963, as substituted by the Finance Act, 1964, read as follows: "40. Amounts not deductible. -Notwithstanding anything to the contrary in sections 30 to 39, the following amounts shall not be deducted in computing the income chargeable under the head 'Profits and gains of business or profession',- . . . . (c) in the case of any company- . . . (iii) any expenditure incurred after the 29th day of February, 1964, which results directly or indirectly in the provision of any benefit or amenity or perquisite, whether convertible into money or not, to an employee (including any sum paid by the company in respect of any obligation which but for such payment would have been payable by such employee), to the extent such expenditure exceeds one-fifth of the amount of salary payable to the employee for any period of his employment after the aforesaid date: Provided that in computing the afor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... With effect from April 1, 1972, section 40A(5) was introduced in substitution of section 40a(v). As introduced by the Finance (No. 2) Act, 1971, it read as follows : "40A. Expenses or payments not deductible in certain circumstances. - . . . . (5)(a) Where the assessee,- (i) incurs any expenditure which results directly or indirectly in the payment of any salary to an employee or a former employee, or (ii) incurs any expenditure which results directly or indirectly in the provision of any perquisite (whether convertible into money or not) to an employee or incurs directly or indirectly any expenditure or is entitled to any allowance in respect of any assets of the assessee used by an employee either wholly or partly for his own purposes or benefit, then, subject to the provisions of clause (b), so much of such expenditure or allowance as is in excess of the limit specified in respect thereof in clause (c) shall not be allowed as a deduction : Provisos (1) and (2)-(omitted as unnecessary). Clauses (b) and (c)-(omitted as unnecessary). Explanations 1 and 2-(omitted as unnecessary)." The sub-section has been amended later in certain respects, but it is not necessary ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... apply unless he is also in receipt of any benefit, amenity or perquisite mentioned in clause (i) ; this is for the reason that clause (ii) uses the expression "such employee" which can only mean an employee referred to in clause (i). Therefore, unless an employee is in receipt of any benefit, amenity or perquisite resulting from any expenditure incurred by the assessee within the meaning of clause (i), the ceiling prescribed in clause (v) will not apply to the expenditure incurred by the assessee over an asset-or to an allowance claimed by the assessee in respect of an asset-used by the employee for his own benefit within the meaning of clause (ii). The argument is built exclusively upon the words "such employee" in clause (ii). We find it difficult to agree with learned counsel for the assessees. The first thing to be noticed is that of the two clauses in sub-clause (v), clause (i) was already there in section 40(c)(iii). 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 s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erpretation upon the said clauses which is not only discriminatory but is highly incongruous. Sri G. B. Pai, learned counsel for the appellant-assessee, submitted that in the case of taxing enactments, literal construction should be adopted and that the courts should not try to mould or twist the language of the enactment for achieving the supposed intention of Parliament. While we agree that literal construction may be the general rule in construing taxing enactments, it does riot mean that it should be adopted even if it leads to a discriminatory or incongruous result. Interpretation of statutes cannot be a mechanical exercise. The object of all the rules of interpretation is to give effect to the object of the enactment having regard to the language used. The intention of Parliament in enacting section 40(a)(v) can be gleaned from the memorandum explaining the provisions of the Finance Bill, 1968, which sets out the object behind this clause. The Full Bench of the Kerala High Court has set out the memorandum in the judgment under appeal. In this connection, we may refer to the well-recognised rule of interpretation of statutes that where a literal interpretation leads to an absu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... expenditure referred to in the said provisions. So far as the first contention is concerned, it appears to be in the teeth of the language employed. Both section 40(a)(v) and section 40A(5)(a)(ii) speak of "any allowance in respect of any assets of the assessee used by an employee". The asset may be a building, a car, a refrigerator or an air-conditioner or any other asset. The allowance in respect of such assets certainly means and includes depreciation allowance on such assets. So far as the second question urged by learned counsel is concerned, it does not appear from the order of the High Court that the said question was either referred to it or was answered by it. We, therefore, decline to go into the said question. Civil Appeals Nos. 5018 to 5021 of 1991: Sri Balakrishnan, learned counsel for the assessee in these appeals, stated that of the two questions referred in these matters, the first question was answered by the High Court against the assessee following the Full Bench decision in CIT v. Forbes, Ewart and Figgis (P.) Ltd. [1982] 138 ITR 1 (Ker). He says that the decision of this court on the said question in the connected appeals would govern the first question. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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