(a) Income-tax---

----Business expenditure---Disallowance of expenditure above prescribed limit---Expenditure resulting in benefit or perquisite to employees-- Expenditure on maintenance of houses owned by assessee-company and flats hired by it for housing senior officers ---Expenditure would amount to benefits or perquisites for purposes of S.40-A(5)---Indian Income-tax Act, 1961, S.40-A.

The expenditure incurred by a company on the maintenance of houses owned by it and flats hired by it for housing senior officers amounts to benefits or perquisites for purposes of: section 40-A(5) of the Income Tax Act, 1961.

Lubrizol India Ltd. v. CIT (1991) 187 ITR 25 (Bon.) fol.

(b) Income-tax---

----Advance tax---Interest payable by Government---Interest payable up to date of regular assessment for assessment years 1973-74 and 1974-75-- Indian Income Tax Act, 1961, S.214.

For the assessment years 1973-74 and 1974-75 interest under section 214 of the Income Tax Act, 1961, is payable up to the date of regular assessment.

Modi Industries Ltd. v. CIT (1995) 216 ITR 759 (SC) applied.

(c) Income-tax---

----Interest on securities---Business income or interest on securities-- Discount on treasury bills is assessable as interest on securities---Indian Income Tax Act, 1961.

The discount on treasury bills is assessable as interest on securities.

British Bank of the Middle East v. CIT (1998) 233 ITR 251 (Bom.) fol:

Rayon Traders (P.) Ltd. v. ITO (1980) 126 ITR 135 (Mad.) ref.

R. V. Desai with P.S. Jetley for the Commissioner.

J. D. Mistry instructed by Crawford Bayley & Co. for the Assessee.

JUDGMENT

S. H. KAPADIA, J.---By this reference under section 256(1) of the Income Tax Act, 1961, the Income-tax Appellate Tribunal has referred the following questions of law for the opinion of this Court at the instance of the Department in respect of the assessment years 1973-74 to 1974-75.

Questions proposed by the Revenue:

"(1) Whether, on the facts and in the circumstances of the case, the Tribunal was right in law, in holding that the expenditure of the company on the maintenance of flats owned by the assessee for housing senior officers and the flats hired for them did not amount to benefit or perquisites for the purposes of section 40-A(5) of the Income Tax Act, 1961?

(2)Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the interest under section 214 is payable up to the date of actual refund and not up to the date of regular assessment?"

Question as proposed by the assessee:

(3)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?"

Heard learned counsel for the parties.

As regards question No. 1 reproduced hereinabove, learned counsel for the parties agreed that the controversy involved in the said question is squarely covered by the judgment of the Division Bench of this Court in Lubrizol India Ltd. v. CIT (1991) 187 ITR 25. Accordingly, question No. 1 is answered in the negative, i.e., in favour of the Revenue and against the assessee.

As regards question No.2, at the outset, 'we wish to make it clear that the opinion expressed by this Court is confined to the facts of this case arising in the context of the assessment years 1973-74 and 1974-75. Hence, we are concerned with the law in existence as it stood prior to March 31, 1975. In this matter, the Commissioner of Income-tax (Appeals) came to the conclusion that interest under section 214 should be allowed up to the date of refund. The Commissioner of Income-tax (Appeals) accordingly allowed the assessee's claim relying upon the judgment of the Madras High Court in Rayon Traders (P.) Ltd. v. ITO (1980) 126 ITR 135. The Tribunal agreed with the view expressed by the Commissioner of Income-tax (Appeals). Hence, the present reference. In the case of Modi Industries Ltd. v. CIT (1995) 216 ITR 759, the apex Court, held that under section 214 of the Income-tax Act, as it stood prior to March 31, 1975, interest was allowable only up to the date of assessment and not up to the date of refund. While summarising, the apex Court laid down at page 808 as follows:

"The position that emerges from the above analysis can be summarised finally as under:

(i)Up to March 31, 1975, interest under section 214 is payable from the first day of April of the relevant assessment year to the date of the first assessment order. The amount on which the interest is to be paid is the amount of advance tax paid in excess of the tax payable by the assessee as calculated in the regular assessment (the first assessment order). The amount on which interest was payable did not vary due to the reduction or enhancement of tax as a result of any subsequent proceedings. But with effect from April 1, 1985, while the period for which interest was payable remained constant, the amount on which the interest was payable, varied with the variation in the quantum of refund as a result of any subsequent order."

Applying the judgment of the Supreme Court to the facts of the present case, question No.2 is answered in the negative, i.e., in favour of the Revenue and against the assessee. Before concluding on this point, it may also be mentioned that the judgment of the Madras High Court in the case of Rayon Traders (P.) Ltd. (1980) 126 ITR 135 referred to hereinabove, stands overruled by the above judgment of the Supreme Court in the case of Modi Industries Ltd. (1995) 216 ITR 759. In the circumstances, we are also not required to examine the various judgments of the High Courts cited on behalf of the assessee as we are of the view that on the facts of the present case the interpretation of section' 214 as it stood prior to March 31, 1975, stands concluded by the above judgment of the apex Court in the case of Modi Industries Ltd. (1995) 216 ITR 759. .

As regards question No.3 reproduced hereinabove, learned counsel for the parties agreed that the controversy involved in the said question is squarely covered by the judgment of the Division Bench of this Court in British Bank of the Middle East v. CIT (1998) 233 ITR 251. Accordingly, question No.3 is answered in the affirmative, i.e., in favour of the assessee and against the Revenue.

Reference is disposed of accordingly with no order as to costs.

M.B.A./13/FC

Order accordingly.