BRAKES INDIA LTD. VS COMMISSIONER OF INCOME-TAX, 1998 PTD-MADRAS-HIGH-COURT-INDIA 1424 (1996)

(a) Income-tax---

----Business expenditure ---Dissallowance of expenditure---Rent-free accommodation to employee---Actual amount paid by employer must be disallowed---Indian Income Tax Act, 1961, Ss.40(c) & 40-A(5).

Actual amount paid by way of house rent allowance is assessable in the hands of the employer under sections 40(c) and 40-A(5) of the Indian Income Tax Act, 1961. '

(b) Income-tax---

----Special deduction---Expenditure incurred in respect of proceedings before Income-tax Authorities or Appellate Authority---Ceding for special deduction--Computation of such expenditure---Fees for preparation of statements and schedules annexed to return must be taken into account--Indian Income Tax Act, 1961, S.80-VV.

Provisions of section 80-VV restricting the allowance toy Rs.5,000 would be applicable even for fees paid for preparation of statements and schedules annexed to the income-tax returns, since the expenditure was incurred in a proceeding before the income-tax Authority. Inasmuch as even according to the assessee, Rs.4,250, was incurred in the previous year; it could be allowable only in the assessment year under consideration to the extent of Rs.5,000.

CIT v. Britannia Industries Co. Ltd. (1982) 135 ITR 35 (Cal.) and CIT v. Ramakrishnan (P.R.) (1980) 124 ITR 545 (Mad.) ref.

(c) Income-tax---

----Business expenditure---Surtax is not deductible---Indian Income Tax Act, 1961, S.37.

Surtax is not deductible in computing the total income of the assessee.

Sundaram Industries Ltd. v. CIT (1986) 159 ITR 646 (Mad.) fol.

P.P.S. Janarthana Raja for Subbaraya Aiyar, Padmanabhan and Ramamani for the Assessee.

C.V. Rajan for the Commissioner.

JUDGMENT

K.A. THANIKKACHALAM, J.---At the instance of the assessee, the Tribunal referred the following three questions for the opinion of this Court under section 256(1) of the Income Tax Act, 1961:

"Whether, on the facts and circumstances of the case, the limited deduction under section 80-VV is irrespective of the number of assessment years to which the expenditure pertains and whether it also applies to fees paid for preparation of statements and schedules annexed to the return of income?

(2)Whether, on the facts and circumstances of the case, the value of the benefit derived by the employee could be substituted for the expenditure incurred by the assessee in assessing the disallowance under section 40-A(5) of the Act?

(3)Whether, on the facts and circumstances of the case, surtax is an allowable deduction in computing the total income of the assessee?"

In so far as question No.3 is concerned, the point that arises for consideration is whether surtax paid by the assessee can be claimed as a deduction while computing the total income of the assessee under the Income Tax Act? Such a deduction is not possible in view of the decision of this Court rendered in the case of Sundaram Industries Ltd. v. CIT (1986) 159 ITR 646. Inasmuch as the order passed by the Tribunal is in conformity with the abovesaid decision cited supra, we answer the question referred to us in the negative and against the assessee.

In so far as question No.2 is concerned, the point for consideration is, whether the value of the benefit derived by the employee could be substituted for the expenditure incurred by the assessee in assessing the disallowance under section 40-A(5) of the Act. A similar question came up for consideration before this Court in the case of sister concern in T.C. No.37 of 1983---Wheels India Ltd. V. CIT (1996) 218 ITR 293 (Mad), wherein by a judgment, dated February 9, 1995, this Court held that actual amount paid by way of house rent allowance is assessable in the hands of the employer under sections 40(c) and 40-A(5) of the Act. Learned counsel appearing for the assessee in order to support his contention that the value of the benefit derived by the employee could be substituted for the expenditure incurred by the assessee in assessing the disallowance under section 40-A(5) of the Act, in other words, according to the assessee, since the perquisite value of the rent free house is taken at Rs.1,800 only in the hands of the employee, the same amount should be taken for the purpose of disallowance under section 40-A(5) also. Reliance was placed upon the decision of the Calcutta High Court in the case of CIT v. Britannia Industries Co. Ltd. (1982) 135 ITR 35 and the decision of this Court in the case of CIT v. P.R. Ramakrishnan (1980) 124 ITR 545. The abovesaid two decisions were also dealt with by this Court while rendering the judgment in Tax Case No. 37 of 1983 (see (1996) 218 ITR 293). The order passed by the Tribunal is in conformity with the above said decision of this Court. Under such circumstances, in view of the decision of this Court in Tax Case No.37 of 1983, dated February 9, 1995 (see (1996) 218 ITR 293), we hold that there is no infirmity in the order passed by the Tribunal on this aspect. Accordingly, we answer question No.2 in the negative and against the assessee.

In so far as question No.l is concerned, it relates to deduction claimed under section 80-VV of the Act. In computing the total income, the assessee had deducted income-tax appeal fees of Rs.4,250 and tax representation and audit fees of Rs.2,000 making a total of Rs.6,250. Out of this amount, only a sum of Rs.5,000 was allowed as deduction under section 80-VV of the Act. The contention of the assessee was that part of this expenditure may relate to earlier years and audit fees may not be regarded as expenditure incurred for the income-tax proceedings which are covered by section 80-V V. The Appellate Tribunal found that the audit fees referred to statements prepared for being annexed to income-tax returns and hence considered it as expenditure falling within the scope of section 80-VV and, therefore, confirmed the disallowance.

Learned counsel for the assessee submitted before us that in so far as appeal fees of Rs.4,250 is concerned, a portion of it would relate to the earlier assessment years, but incurred in the accounting year relevant to the assessment year under consideration. Therefore, according to learned counsel, the entire amount of Rs.4,250 does not relate to this assessment year. Section 80-VV states that in computing the total income of an assessee, there shall be allowed by way of deduction any expenditure incurred by him in the previous year in respect of any proceedings before any income-tax authority or the Appellate Tribunal or any Court relating to the determination of any liability under this Act, by way of tax, penalty or interest; provided that no deduction under this section shall, in any case, exceed in the aggregate five thousand rupees. Therefore, expenditure incurred by the assessee in the previous year in respect of any proceedings alone can be allowed to the extent of Rs.5,000. Inasmuch as even according to the assessee, Rs.4,250 was incurred in the previous year, it can be allowable only under the present assessment year under consideration to the extent of Rs.5,000. Expenditure relating to the earlier years incurred in the previous year cannot be allowed, if such expenses were not incurred in the previous year relevant to the assessment year under consideration. Further, the assessee has not given any break-up to show as to, what would be the portion of expenditure that was related to the earlier years. Inasmuch as the assessee himself offered Rs.4,250 as the expenditure incurred in this year and claimed the same as deduction under section 80-VV, it is not possible to make a claim for not considering a portion of the same since it belongs to the earlier years. Under such circumstances, inasmuch as the order passed by the Tribunal on this aspect was in conformity with the provisions contained in section 80-VV of the Act, the order passed by the Tribunal is in order. The provisions of section 80-VV restricting the allowance to Rs.5,000 would be applicable even for fees paid for preparation of statements and schedules annexed to the income-tax returns, since the expenditure was incurred in a proceeding before the income-tax authority. Accordingly, we answer this question in the affirmative and against the assessee. No. costs.

M.B.A./1406/FCReference answered.