TMI Blog1997 (2) TMI 39X X X X Extracts X X X X X X X X Extracts X X X X ..... ceeded the statutory limit for allowance prescribed under these provisions. The Income-tax Officer, therefore, restricted the allowance to the ceiling limit laid down under the provisions of section 40(c)/40A(5) of the Act and dis-allowed the excess amount which amounted to Rs. 1,09,482. The Income tax Officer also disallowed a sum of Rs. 5,000 out of the expenditure captioned under the head, "Sales promotion expenses" and another sum of Rs. 4,367 out of the miscellaneous expenditure representing the entertainment expenditure. The assessee preferred an appeal to the Commissioner of Income-tax (Appeals) against the order of assessment. The Commissioner of Income tax (Appeals) held that the expenditure like rates and taxes, building maintenance expenditure, insurance, depreciation of buildings, salary to watchmen, maintenance expenditure including depreciation, the rent paid by the company for the property on lease, electricity charges and personal accident insurance cannot be classified as perquisites and, hence, he held that those items could not form part of perquisites and cannot be disallowed under the provisions of section 40(c)/40A(5) of the Act. In so far as the additions m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of these expenses as forming part of perquisites should be deleted ? 2. Whether, on the facts and in the circumstances of the case, the sum of Rs. 5,000 disallowed under the head, 'Sales promotion expenses' and another sum of Rs. 4,367 under the head, 'Miscellaneous expenses' would not come under entertainment expenditure and, therefore, no disallowance therefor was needed ?" Mr. S. V. Subramanian, learned senior counsel, appearing for the Department submitted that the expenses like rates and taxes paid by the assessee-company in respect of the buildings and vehicles owned by the company are perquisites. He submitted that the salary paid to the watchmen is also a perquisite. The maintenance expenses of the vehicles and depreciation allowance on the vehicles, according to learned senior counsel, are also subject to the ceiling limit prescribed under section 40(c)/ 40A(5) of the Act. In so far as the personal accident insurance premium payment is concerned, learned senior counsel submitted that it is for the benefit of the employees and hence, it should be treated as perquisite for the purpose of disallowance under section 40(c)/40A(5) of the Act. In so far as the entertainment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rds the second question, it was fairly conceded by learned counsel for the assessee-company that the assessment involved is for the year 1976-77 and in view of the retrospective amend ment made by Explanation 2 to sub-section (2A) of section 37 of the Act by the Finance Act, 1983, with effect from April 1, 1976, the expenditure should be regarded as entertainment expenditure and the decision of the Supreme Court in CIT v. Patel Brothers and Co. Ltd. [1995] 215 ITR 165 would govern the case. It is now necessary to consider the item of details of expenditure, which are the subject-matter of the disallowance prescribed under section 40(c)/40A(5) of the Income-tax Act, 1961. It is not in dispute that the provisions of section 40(c)/40A(5) of the Act would apply to the facts and there is no material difference, in so far as the applicability of the said sections is concerned, to the facts of the case. Section 40A(5) of the Act was introduced by the Finance (No. 2) Act, 1971, with effect from April 1, 1972. Under section 40A of the Act, where the assessee incurred any expense, which results directly or indirectly in the provision of any perquisites (whether convertible into money or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Court also held that the beneficiary is the company and payment of municipal taxes or repairs to the premises is not perquisite for the purpose of determining the quantum of disallowance as prescribed under section 40A(5) of the Act. Following the decision of the Calcutta High Court, we also hold that the expenditure incurred by the assessee by way of payment of municipal taxes or taxes paid in respect of vehicle owned by the assessee-company cannot be taken into account for the purpose of disallowance prescribed under section 40(c)/40A(5) of the Act. No doubt, learned senior counsel appearing on behalf of the Department relied upon an unreported decision of this court in T. C. Nos. 271 of 1982 and 170 of 1983 dated March 16, 1995. But, it is seen that there is no discussion on this point. Regarding the second item, namely, salary paid to the watchmen, it is not seriously disputed by learned counsel for the assessee-company that the salary paid to the watchmen is a perquisite and the same would be the subject-matter of consideration under the provisions of section 40(c)/ 40A(5) of the Act. Regarding the third item, maintenance of vehicles, the Tribunal held that the expenditur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the case of CIT v. Chase Bright Steel Ltd. (No. 1) [1989] 177 ITR 124 and submitted that the expenditure on repairs would fall under section 30 of the Act and, therefore, the ceiling limit prescribed under section 40(c)/40A(5) of the Act does not apply. We are of the view that the decision of the Bombay High Court has no application as the provisions of section 40(c)/ 40A(5) of the Act have overriding effect over the provisions of section 30 or 32 of the Income-tax Act. Regarding the fourth item, depreciation allowance, it is conceded by learned counsel appearing for the assessee-company that in so far as the depreciation allowance is concerned, the decision of the Supreme Court in C.W.S. (India) Ltd. v. CIT [1994] 208 ITR 649 would govern the case. The Supreme Court in that case has held that the expression "allowance" in section 40(a)(v) and section 40A(5)(a)(ii) takes in depreciation allowance and the ceiling on expenditure provided under these provisions applies also to depreciation allowance on all assets belonging to the employer-assessee used by an employee. Following the decision of the Supreme Court, we hold that the Tribunal was not correct in holding that the allowance ..... 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