TMI Blog2003 (3) TMI 68X X X X Extracts X X X X X X X X Extracts X X X X ..... red by S.H. KAPADIA J.- By order dated October 9, 1991, the Tribunal has refer red to this court, common questions of law under section 256(1) of the Income-tax Act, 1961, for our opinion. The following two questions have been referred to us at the instance of the assessee: "(1) Whether, on the facts and in the circumstances (if the case, the Tribunal erred in holding that the interest received by the bank on the sale of Government securities held by it is assessable to tax as 'income from business' and not as 'interest on securities'? (2) Whether, on the facts and in the circumstances of the case, the Tribunal erred in holding that the discount on treasury bills is assessable as 'income from business' and not as 'interest on securities'?" Answers: In this reference, we are concerned with the assessment year 1981-82. In the present case, there is no evidence on record to indicate the nature of the Government securities. There are dated Government securities and there are securities which are not dated. In the present case, no material is placed before us regarding the type of Government securities. In the circumstances, we cannot apply the ratio of the judgment of this ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd quoted hereinabove, Mr. R.V. Desai, learned senior counsel appearing on behalf of the Department, contended that in this case expenditure was incurred by the assessee on repairs and maintenance of flats owned by the assessee and used for the residence of employees. He contended that such expenditure constituted perquisite. In this connection, he relied upon the judgment of the Bombay High Court in the case of Lubrizol India Ltd. v. CIT [1991] 187 ITR 25. He contended that section 40A(5)(a)(ii) is in two parts. He contended that we are not concerned with the first part. He contended, however, that the second part of the said sub-section stipulates that where an assessee incurs any expenditure in respect of any of its assets used by its employee then the expenditure incurred by the assessee is covered by the second part of section 40A(5)(a)(ii). He contradistinguished the second part with the first part, which applies only if the expenditure results in any perquisite to the employee. On the other hand, Mr. Mistry learned counsel appearing on behalf of the assessee, argued that section 40A(5)(a)(ii) is in three parts. That, it refers to expenditure which results in perquisites to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ect of the assets of the assessee used by an employee. Mr. Mistry contended that the expenses such as rent, municipal taxes, maintenance charges do not fall under section 40A(5)(a)(ii) as they are not an expenditure in respect of the assets of the assessee. Findings on questions Nos. (1) and (2) raised by the Department: These two questions are being jointly decided. Briefly, the assessee has objected to the following two items being considered for disallowance under section 40A(5) of the Act. They are expenditure on repairs and maintenance of premises owned or taken on lease by the assessee-bank and let out to the employees and, secondly, ground rent, rates and taxes and society charges in respect of owned accommodation given to the employees. Section 40A(5)(a)(ii) states that where the assessee incurs expenditure, which results in the provision of any perquisite to an employee or incurs any expenditure in respect of any assets of the assessee used by the employee for his own benefit, then So much of such expenditure, as is in excess of the limit specified, shall not be allowed as a deduction. If one reads section 40A(5)(a)(ii), the emphasis is on the word "expenditure". There ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me, which is chargeable to tax under different heads. That, in the course of carrying on its business, a banking company has to make investments in Government securities. That, while the income earned by it has to be allocated under proper heads with reference to different sources, the expenditure is common and, therefore, when a banking company earns income, which falls under the head "Profits and gains from business" and also under the head "Interest on securities" of the Central or State Government, the expenditure to earn the income under both the heads is common and since the expenditure is common, section 40A(5) should be applied to the total expenditure. On the other hand, it was argued on behalf of the assessee that section 40A puts a cap on expenses incurred to earn business income and in the circumstances, the Department is wrong in putting that cap on the total expense. This is the basic controversy in this case. Findings on questions Nos. (3) and (4) raised by the Department: Questions Nos. (3) and (4) deal with a common topic of interpretation of section 20(1)(i), as it stood at the relevant time. For the sake of convenience, section 20(1)(i) is quoted hereinbelo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es and expenditure allowable for other types of banking business in proportion to the income earned under the respective heads. According to the Department, since section 37 forms an integral part of apportionment of expenditure under section 20(1)(i), section 40A(5) is automatically attracted. We do not find any merit in the case of the Department. Section 40A refers to expenses/payments not deductible in certain circumstances. Section 40A(1) declares that the provisions of section 40A shall have effect, notwithstanding anything to the contrary in section 28 to section 44D (which includes sections 36 and 37). Therefore, the provisions of section 40A have an overriding effect over the provisions of any other section by providing that section 40A will have effect, notwithstanding anything to the contrary contained in any other provisions relating to computation of income under the head "Profits and gains of business". In view of section 40A having an overriding effect, and since section 40A deals with expenses not deductible under certain circumstances, and since section 40A(5) provides for disallowance of expenditure beyond a particular limit, that section operates as a complete co ..... X X X X Extracts X X X X X X X X Extracts X X X X
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