COMMISSIONER OF INCOME TAX vs T.V. SUNDARAM IYENGAR and SONS

N.V. BALASUBRAMANIAN, J.

The Tribunal, at the instance of the Revenue has referred the following two questions of law for our consideration under s. 256(2) of the IT Act, 1961:

"(1) Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the expenses like rates and taxes paid in respect of the buildings and vehicles owned by the company, salary paid to watchman, maintenance of vehicles and depreciation thereon and personal accident insurance premium payments etc., cannot be treated as perquisites for purposes of disallowance under s. 40(c)/40A(5) of the IT Act, 1961 and hence the disallowance made on the basis of these expenses jas forming part of tlie perquisites should be deleted?

(2) Whether, on the facts and in the circumstances of the case the deposit of Rs. 2,12,821 made by the assessee on 15th March, 1977 with the Industrial Development Bank of India under the Companies Deposits (Surcharge on income tax) Scheme, 1976 qualifies for the reduction of surcharge on Income Tax within the scope of the proviso to s. 2(1)(b) of the Finance (No. 2) Act, 1976?"

The year of assessment of the assessee with which we are concerned is 1977-78, and the relevant previous year ended on 31st March, 1977. The ITO while determining the income of assessee, disallowed a sum of Rs. 3,51,871 under ss. 40(c) and 40A(5) of the IT Act as expenses incurred by the assessee on perquisites made available to the directors and employees in excess of the ceiling limits prescribed under ss. 40(c) and 40A(5) of the Act. The CIT(A) found that certain of the expenditure mentioned in the question referred to us fan outside the scope of ss. 40(c) and 40A(5) of the Act and his view was confirmed by the Tribunal. The Revenue has challenged the order of the Tribunal and the first question relating to ss. 40(c) and 40A(5) of the Act has been referred to us.

The first question referred to us, refers to number of items. The first item relates to rates and taxes paid in respect of the buildings and vehicles owned by the comany, In so far as the taxes paid on the buildings and vehicles are concerned this Court in TC Nos. 1149 and 1150 of 1988 by judgment dt. 2nd April, 1998 [since reported as South India Co1pn. Agencies P. Ltd. vs. CIT (1998) 147 CTR (Mad) 4761 held that the taxes paid in respect of the buildings and vehicles are concerned, they would fall on the assessee in his capacity as the owner of the building or vehicle, as the case may be and not in the capacity of an employer. The reasoning which apply to the taxes on the building would equally apply to the rates also. Following the earlier judgment of this Court in TC Nos. 1149 and 1150 of 1988 dt. 2nd April, 1998 (supra), we hold that the expenses like rates and taxes paid in respect of the buildings and the vehicles owned by the company would be outside the''tpurview of s. 40(c) and 40A(5) of the IT Act.

The next item that is the subject-matter of salary paid to watchman. This Court in TC No. 169 of 1984 dt. I Ith Feb., 1997 [since reported as CIT vs. T.V. Sundaram Iyengar & Sons (1998) 148 CTR (Mad) 91 has taken the view that the salary paid to the watchman would be regarded as remuneration on perquisite under ss. 40� and 40A(5) of the Act. We, therefore, hold that the Tribunal was not correct in holding that the salary paid to the watchman should not be taken into consideration for the purpose of determining the ceiling under ss. 40C and 40A(5) of the Act.

The next item that is the subject-matter of the dispute is the maintenance of the maintenance vehicles and depreciation thereon. Both the items namely, the maintenance expenditure and the depreciation allowance have been held by the Supreme Court in the case of C.W.S. (India) Limited Vs. Commissioner of Income Tax, , would fall within the scope and ambit of ss. 40(c) and 40A (5) of the Act.

This Court in TC No. 169 of 1984 (supra) following the judgment of the Supreme Court, held that the Tribunal was not correct in holding that the maintenance expenditure and the depreciation allowance should not be considered to determine the ceiling prescribed under ss. 40(c) and 40A(5) of the Act.

The last item is the Dersonal accident insurance premium payments. It is represented by the learned counsel for the assessee that a similar questibn of law was considered by this Court in TC No. 169 of 1984 dt. 11th Feb., 1997 wherein this Court has taken the view that the persona expenditure and accident insurance premium cannot be regarded as a perquisite of the employee on the director as the policy was taken by the employer for its benefits, and the employees have no right to claim the money from the insurance companies. Though the Tribunal has not discussed the terms of the policy, it is stated under the terms of the policy the employees have no right to claim the money from the insurance companies. Following the judgment in TC No. 169 of 1984 dt. 11th Feb., 1997 (supra) we hold that the Tribunal was correct in holding that the personal accident insurance premium payments cannot be treated as perquisites for the purposes of disallowance under ss. 40(c) and 40A)5) of the Act.

7.'' In the result, we answer the first question of law referred to us as under :The expenses like rates and taxes paid ''in respect of the buildings and vehicles and the personal accident insurance premium payments cannot be treated as perquisites; but the salary paid to watchman, expenses for maintenance of vehicles and depreciation thereon should all be taken into consideration for the purpose of disallowance under ss. 40(c) and 40A(5) of the Act.

The second question relates to the deduction of deposit made by the assessee with the Industrial Development Bank of India. The assessee- company had made a deposit of Rs. 2,12,821.00 on 15th March, 1977 with the Industrial Development Bank of India under the Companies Deposits (Surcharge oh income tax) Scheme, 1976. The ITO disallowed the claim of the assessee and held that no credit can be given for the deposit with the Industrial Development Bank of India made on 15th March, 1977 as the same was not paid before the due date for the payment of instalment of advance tax The CIT and the Tribunal did not accept the view of the AO as tenable and upheld the claim of the assessee. As against the order of the Tribunal, second question of law has bee referred to us at the instance of the Revenue.

Sec. 2 the Finance (No. 2) Act, 1977 provides the rate of Income Tax and surtax, but under the proviso of s. 2 of the said Finance Act, it is provided that where an assessee, being a company, had made, during -the financial year commencing on the first day of April, 1976, any deposit with the Industrial ''Development Bank of India under the Companies Deposits (Surcharge on Incometax) Scheme, 1976, the surcharge on Income Tax payable by the company shall be reduced to the extent of the deposit. Admittedly, the sum of Rs. 2,12,821 was made by the company on 15th March,. 1977 and the deposit was made before the end of the financial year which ended on 31st March, 1977. Thus, the assessee had satisifed the requirements of the proviso of s. 2(1)(b) of the Finance (No. 2) Act, 1977 and as the statutory conditions are complied with by the assessee company, the assessee is eligible to get the credit for the deposit made by the company with the Industrial Development Bank of India under the scheme in accordance with s. 2(1)(b) of the Finance (No. 2) Act, 1977 and becomes eligible to get the same deducted from the surcharge levied on the assessee-company. We hold that the assessee was judtified in its claim that the deposit made by should go to reduce the surtax payable by it and the assessee is entitled to the deduction of the deposited amount Rs. 2,12,821.00 made on 15th March, 1977. We hold that there is no error in the order of the Tribunal and accordingly, we answer the second question of law referred to us in the affirmative, against the Revenue and in favour of the assessee. In the above circumstances, there will be no order as to costs.

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