TMI Blog1987 (10) TMI 10X X X X Extracts X X X X X X X X Extracts X X X X ..... purpose of section 40A(5) of the Income-tax Act ? 2. Whether, on the facts and in the circumstances of the case, the buildings owned by the assessee and allowed to be occupied by some highly-paid employees could be treated as the business assets of the assessee for the purpose of section 40A(5) ? 3. Whether, on the facts and in the circumstances of the case, the expenditure incurred for replacement of crockery used by the employees in the buildings allotted to them could be treated as a separate perquisite for the purpose of computing the disallowance under section 40A(5) ? 4. Whether, on the facts and in the circumstances of the case, the reimbursement of medical expenses did not come within the meaning of section 40A(5) ? 5. Wheth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e three questions, again questions Nos. 2 and 6 go together. We have to answer question No. 6 first and the answer to question No. 2 will follow as a consequence. We shall, therefore, first take up question No. 6. The assessee owns certain buildings which it allots for the occupation of its directors and other senior executives. It does not collect any rent from them. They are given free of rent. The Income-tax Officer felt that the notional income from these properties should be determined and included in the income of the assessee under the head " Income from property ". The assessee's contention, however, was that these buildings are business assets of the company and are being used for its business purpose and hence the income therefr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . It must also be said that the occupation by its employees is for the purpose of the assessee's business. With a view to illustrate the proposition, we may take a slightly different example. Take a case where an assessee builds a number of houses or a colony for the purpose of accommodating its workers. The idea is that the workers should be nearer to the factory or should be housed in hygienic and proper conditions so as to improve their productivity, health and their commitment to the employer. No rent is collected from such workers, though, according to the terms of employment, the assessee is under no obligation to provide such houses. It is done only with a view to keep the workers happy, in good cheer and in good humour. In such a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e concessional rate of interest and the prevailing market rate of interest should be disallowed under section 40A(5) of the Act. On this question too, the Tribunal, following its earlier decision, held in favour of the assessee. This question has to be answered with reference to the language employed in sub-section (5) of section 40A of the Act. In so far as it is relevant, the provision reads thus: "40A.(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 in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n (5) applies where an assessee claims a certain deduction saying that he has spent that money in providing, directly or indirectly, either as salary to an employee or in the provision of perquisite to an employee. Only then do the ceilings prescribed in the said sub-section come into play. It is true that in some cases this facility may be abused. We know public corporations like banks lending money to their own employees at practically no interest, say for example, one or two per cent. interest per annum, whereas those very banks lend to people at rates of interest ranging from 13% to 19% per annum. But the remedy for that must lie elsewhere, either in the proper control of the public corporations or in the amendment of the Income-tax Act ..... X X X X Extracts X X X X X X X X Extracts X X X X
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