SOUTH INDIA CORPORATION AGENCIES (P.) LTD. VS COMMISSIONER OF INCOME-TAX
2001 P T D 693
[239 I T R 305]
[Madras High Court (India)]
Before R. Jayasimha Babu and N. V. Balasubramanian, JJ
SOUTH INDIA CORPORATION AGENCIES (P.) LTD.
versus
COMMISSIONER OF INCOME‑TAX
Tax Cases Nos.1149 and 1150 of 1988 (References Nos.893 and 894 of 1988), decided on 02/04/1998.
(a) Income‑tax‑‑‑
‑‑‑‑Reassessment‑‑‑Failure to disclose material facts necessary for assessment‑‑‑Company‑‑‑Failure to give full details of expenses which Could be disallowed under. S.40A(5)‑‑‑Reassessment proceedings were valid‑‑ Indian Income Tax Act, 1961, Ss.40A & 147.
The assessee‑company filed its returns for the assessment years 1974‑75 and. 1975‑76. The assessee alongwith the returns filed for those assessment years, filed statements showing the amounts of expenditure disallowable under section 40A(5) of the Income Tax Act, 1961, in respect of a house utilised by its Deputy Chairman free of rent and in the statements filed alongwith the returns, the assessee had shown the salary and allowance to the Deputy Chairman as Rs.60,000, 20 percent. thereof being Rs.12,000 and the money value of perquisite was shown as Rs.7,500 and claimed "nil" as the excess over 20 percent. of the salary. The Income‑tax Officer of the basis of the information furnished by the assessee, completed the original assessment for the two assessment years in question. The Income‑tax Officer subsequently came to know that the assessee had incurred certain expenditure on the property belonging to the company in which the Deputy Chairman was allowed to reside which comprised property tax, electricity charges, depreciation and repairs. He started reassessment proceedings. The Income tax Officer in the reassessment proceedings held that the income to the extent to which it was disallowable under section 40A(5)(a) of the Act had escaped assessment and computed the amount to be disallowed for the two years at Rs.27,232 and Rs.42,700, respectively, and made additions of the sane to the assessee's total income for the respective assessment years. This was upheld by the Tribunal. On a reference:
Held, (i) that the provisions of section 40A(5)(a) of the Act would cover any expenditure in respect of any asset of the assessee used by the employee either wholly or partly for his own purpose or benefit. The expression "expenditure" in section 40A(5) is wide enough to cover expenses on repairs. It cannot be confined only to extraordinary expenditure incurred by the assessee by way of renovation, but it would include and encompass within itself the normal repair expenditure and also the expenditure incurred at the behest of the employee to keep the house in a comfortable living and habitable condition. Electricity‑ charges and depreciation would also be covered by section 40A(5). Hence, depreciation, electricity charges and expenses on repairs would be subject to the ceiling under section 40A(5).
C.W.S. (India) Ltd. v. CIT (1994) 208 ITR 649 (SC) applied.
(b) Income‑tax‑‑‑
‑‑‑‑Business expenditure‑‑‑Disallowance of expenditure ‑‑‑Company‑‑ Expenditure resulting in benefit to director or employee‑‑‑House belonging to company occupied by Deputy Chairman‑‑‑Expenditure on electricity and repairs and depreciation subject to ceiling limit under S.40A(5)‑‑‑Property tax is not an expenditure covered by S.40A(5)‑‑‑Indian Income Tax Act, 1961, S.40A.
Property tax is a statutory liability falling on the assessee as an owner. The assessee had necessarily to discharge its liability towards property tax, whether the house was in the occupation of the Deputy Chairman or not and the liability arose irrespective of whether the asset was used by the Deputy Chairman or not. Since the liability fell on the assessee under the provisions of a statute as an owner of the house property, and the liability had to be incurred, whether the house was in occupation or not, the amount paid by way of property tax could not be regarded as an expenditure falling within the ambit and scope of section 40A(5).
CIT v. Motor Industries Co. Ltd. (No. 2) (1998) 229 ITR 137 (Kar.) fol.
The facts found by the Tribunal clearly showed that the assessee had not disclosed material facts before the Income‑tax Officer at the time of the original assessment proceedings to determine the amount to be disallowed under section 40A(5) of the Act. It was found that the assessee had not even disclosed the fact that the asset was used or allowed to be used by the Deputy Chairman for his personal use in the statement filed alongwith the return. There was no item‑wise classification of the expenditure. In the column with reference to the amounts which were disallowable under section 40A(5) of the Act, the assessee had not shown various types of expenditure incurred by the assessee on the house by the Deputy Chairman free of rent. The facts as found by the Tribunal clearly showed that the assessee had neither disclosed in the statement filed alongwith the return, nor informed the officer during the course of assessment proceedings that out of the entire amounts shown in the profit and loss account, apart of it was with reference to the expenditure on the house used by the Deputy Chairman for his personal use. Though the expenditure incurred might have been shown or figured in the profit and loss account merely filing of the profit and loss account would not be sufficient and that would not discharge the duty cast upon the assessee to disclose all primary facts before the Income‑tax Officer for the application of section 40A(5) of the Act. The reassessment proceedings were valid.
CIT v. Forbes, Evart and Figgis (P.) Ltd. (1982) 138 ITR 1 (Ker.) and CIT v. Kisenchand Chellaram (India) (P.) Ltd. (1981) 130 ITR 385 (Mad.) ref.
P. P. S. Janarthana Raja, for the Assessee.
C.V. Rajan for the Commissioner.
JUDGMENT
N.V. BALASUBRAMANIAN, J.‑‑‑In respect of its assessment of income for the assessment years 1974‑75 and 1975‑76, the assessee sought for a statement of the case, on the following two questions of law:
"(1) Whether, under the facts and circumstances of the case, the re -opening of the assessments under section 147(a) is valid?
(2) Whether under the facts and circumstances of the case, the expenditure incurred by the company on the house occupied by the Deputy Chairman towards property tax, electricity charges, depreciation and repairs should be included in arriving at the amount disallowable under section 40A(5)?"
The assessee is a company which filed returns for the assessment year 1974‑75 on November 1, 1974, declaring a total income of Rs.6,98,100 and for the assessment year 1975‑76 on September 26, 1975, declaring a total income of Rs.6,69,440. The Income‑tax Officer completed the original assessment for the two assessment years on December 15, 1977, and March 4, 1978, respectively. The assessee alongwith the returns filed for those assessment years, filed statements showing the amounts of expenditure disallowable under section 40A(5) of the Income Tax Act, 1961 (hereinafter to be referred to as "the Act"), in respect of a house utilised by its Deputy Chairman free of rent and in the statements filed alongwith the returns, the assessee had shown the salary and allowance to the Deputy Chairman as Rs.60,000, 20 per cent, thereof being Rs.12,000 and the money value of perquisite was shown as Rs.7,500 and claimed "nil" the excess over 20 percent. of the salary. The Income‑tax Officer on the basis of the information furnished by the assessee, completed the original assessment for the two assessment years, in question.
The Income‑tax Officer subsequently came to know that the assessee had incurred certain expenditure on the property belonging to the company in which the Deputy Chairman was allowed to reside and the expenditure incurred on the building for the two assessment years was as under:
| | Assessment year | |
| | 1974‑75 | 1975‑76 |
| Property tax | 5,559 | 8,715 |
| Electricity charges | 24,651 | 27,173 |
| Depreciation | 24,864 | 24,242 |
| Repairs | 24,651 | 23,588 |
| | 79,725 | 83,718 |
The Income‑tax Officer came to the conclusion that the assessee had not furnished full and true particulars of its income at the time of original assessment and, therefore, he formed a reasonable belief that the income has escaped assessment and he issued the notices of reassessment. The Income tax Officer found that the income has escaped assessment and completed the reassessment. The Income‑tax Officer in the reassessment proceedings held that the income to the extent to which it was disallowable under section 40A(5)(a) of the Act has escaped assessment and computed the amount to be disallowed for the two years at Rs.27,232 and Rs.42,700 respectively, and made additions of the same to the assessee's total income for the respective assessment years.
Aggrieved by the orders of reassessment, the assessee preferred appeals before the Commissioner of Income‑tax (Appeals). The Commissioner (Appeals) accepted the objection raised by the assessee with regard to the reopening of the assessment under section 147(a) of the Act and he also held that no part of the expenditure in question can be the subject- matter of ceiling under section 40A(5) of the Act. The Commissioner (Appeals) allowed the appeals preferred by the assessee.
The Revenue, dissatisfied with the order of the Commissioner, preferred appeals before the Income‑tax Appellate Tribunal challenging the views of the Commissioner (Appeals) both on the question of jurisdiction of the Income‑tax Officer to reopen the assessment as well as on the merits of the case. 'The Tribunal came to the conclusion that the assessee had not disclosed full and true particulars at the time of original assessment and since the assessee had not disclosed full and true particulars, the Tribunal upheld the action taken by the Income‑tax Officer to reopen the assessment under section 147(a) of the Act. The Tribunal also held that the assessee‑company allowed its Deputy Chairman to use one of its assets for his own purpose and benefit and the assessee had not disclosed the fact that the property was used by its Deputy Chairman for his personal purposes in the statement filed by the company and furnished the amount disallowable under section 40A(5) of the Act. The Tribunal, therefore, came to the conclusion that the Income‑tax Officer has jurisdiction to reopen the assessment proceedings.
On the merits of the case, the Tribunal held that the expendi ture incurred' towards property tax, electricity charges, repairs and depreciation should be included in arriving at the amount disallowable under section 40A(5) of the Act. The Tribunal followed a decision of this Court in the case of CIT v. Kisenchand Chellaram (India) (P.) Ltd. (1981) 130 ITR 385 and a Full Bench decision of the Kerala High Court in the case of CIT v. Forbes, Ewart and Figgis (P.) Ltd. (1982) 138 ITR 1 and came to the conclusion that the expenditure incurred by the assessee would fall within the scope of section 40A(5) of the Act and as the amount exceeded the limit prescribed in the said section, the amount was to be disallowed to the extent to which it was in excess of the limit prescribed for allowance. The assessee has challenged the order of the Appellate Tribunal and the Appellate Tribunal has stated a case and referred the two questions of law set out earlier.
Learned counsel for the assessee submitted that the assessee had disclosed all facts necessary for the assessment at the time of original assessment and in the original return filed at the time of original assessment, the assessee had shown the entire expenditure in the profit and loss account of the company and it has also drawn to the notice of the Income‑tax Officer that the building was in occupation of the Deputy Chairman of the assessee and in the statement filed alongwith the original return, the assessee had shown that the building was in occupation of the Deputy Chairman of the assessee and the expenditure incurred. He, therefore, submitted that the Income‑tax Officer should have drawn a proper inference from the statement filed by the assessee before him at the time of original assessment and for his failure to draw a proper inference, it is not open to the Income‑tax Officer to resort to reassessment proceedings to cover up his fault. On the question of merits, learned counsel for the assessee submitted that in so far as the property tax is concerned, the assessee had incurred. expenditure on the property tax for its own house occupied by the deputy chairman and the same would not come within the purview of section 40A(5) of the Act. He has not seriously disputed with reference to the electricity charges and depreciation. He relied upon a decision of the Karnataka High Court in the case of CIT v. Motor Industries Co. Ltd. (No.2) (1998) 229 ITR 137 and submitted that normal repair charges would not come within the purview of section 40A(5) of the Act.
On the other hand; learned counsel for the Revenue submitted that the assessee had not disclosed primary facts at the time of completion of the original assessment which warranted reassessment proceedings on the facts of the case. Learned counsel for the Revenue relied upon a decision of the apex Court in the case of C.W.S. (India) Ltd. v. CIT (1994) 208 ITR 649 and submitted that the repair charges would also fall within the scope of section 40A(5) of the Act.
We have carefully considered the rival submissions of learned counsel. In so far as the question of jurisdiction of the Income-tax Officer to reopen the assessment proceedings is concerned, the facts found by the Appellate Tribunal clearly show that the assessee had not disclosed material facts before the Income‑tax Officer at the time of original assessment proceedings to determine the amount to be disallowed under section 40A(5) of the Act. It was found that the assessee had not even disclosed the fact that the asset was used or allowed to be used by the Deputy Chairman for his personal use in the statement filed alongwith the return. The assessee, no doubt, might have claimed the expenditure incurred by the assessee on the house and had shown the same in the profit and loss account filed alongwith the return, but it was not shown separately, but as part of the business expenditure of the company and claimed as a deduction. There was no item wise classification of the expenditure. In the column with reference to the amounts which are disallowable under section 40A(5) of the Act, the assessee had not shown various types of expenditure incurred by the assessee on the house used by the Deputy Chairman free of rent. The facts as found by the Appellate Tribunal clearly show that the assessee had neither disclosed in the statement filed alongwith the return, nor informed the officer during the course of assessment proceedings that out of the entire amounts shown in the profit and loss account, part of it was with reference to the expenditure on the house used by the Deputy Chairman for his personal use. Though the expenditure incurred might have been shown or figured in the profit and loss account, mere filing of the profit and loss account would not be sufficient and that would not discharge the duty cast upon the assessee to disclose all primary facts before the Income‑tax Officer for the application of section 40A(5) of the Act. The Tribunal referred to the original return filed by the assessee and found that in respect of the amounts to be disallowed under section 40A(5) of the Act, the full details of the expenditure have not been disclosed or mentioned in the return or in the statement accompanying the return. Consequently, we hold that the assessee had not disclosed the full details in respect of the expenditure either at the time of filing of the return or in the statement filed alongwith the return or subsequently before the Income‑tax Officer at the time of completion of the original assessment. Therefore, the statement filed by the assessee alongwith the return cannot be taken to be as disclosure of the full and true facts necessary for the assessment for the two assessment years; and once such a conclusion is reached, we are of the opinion, the Income‑tax Officer has the necessary jurisdiction to reopen the assessment under section 147(a) of the Act. We find no infirmity in the order of the Appellate Tribunal in holding that the Income‑tax Officer has properly exercised his jurisdiction to reopen the assessment for the two assessment years under section 147(a) of the Act. Therefore, the first common question of law referred for both the assessment years is liable to be answered against the assessee.
In so far as the second question referred to us is concerned, there are four items of expenditure which are the subject‑matter of dispute. In so far as the expenditure of electricity charges and the claim of depreciation, are concerned, in our opinion, the decision of the Supreme Court in the case of C.W.S. (India) Ltd. v. CIT (1994) 208 ITR 649, would apply to the facts of the case. The apex Court in the above-said decision held that allowance under section 40A(5) would include depreciation allowance. The Supreme Court also held that the maintenance expenditure incurred on the house used by the director or by the employee of the assessee would also be subject to the ceiling limit under section 40A(5) of the Act. The electricity charges were incurred by the assessee on the house used by the Deputy Chairman for his own purposes. Therefore, that would also be subject to the ceiling limit under section 40A(5) of the Act. In so far as the third item, namely, the expenditure on repairs is concerned, learned counsel for the Revenue relied upon a decision of the Karnataka High Court in the case of CIT v. Motor Industries Co. Ltd. (No.2) (1998) 229 ITR 137, wherein the Karnataka High Court held that the normal repair expenses cannot be added finder section 40A(5) of the Act and only the repair expenses to meet Special requirements of the employee in occupation can be added under section 40A(5) of the Act. We are of the opinion that the decision of the Supreme Court in C.W.S. (India) Ltd. v. CIT (1994) 208 ITR 649, would apply to the expenditure on repairs as well. The Supreme Court in the said decision held that the maintenance expenses incurred on the asset used by an employee would also be subject to the ceiling limit prescribed under section 40A(5) of the Act the repair charges were incurred by the assessee for the comfortable living of the Deputy Chairman and it cannot be stated that it is outside the scope and ambit of section 40A(5) of the Act. We hold that the provision of section 40A(5)(a) of the Act would cover any expenditure in respect of any asset of the assessee used by the employee either wholly or partly for his own purpose or benefit. The expression, "expenditure" in section 40A(5) is wide enough to cover the repair expenditure also and when there are no words limiting the scope of the expression, "expenditure", it cannot be confined only to extraordinary expenditure incurred by the assessee by way of renovation, but it would include and encompass within itself the normal repair expenditure and also the expenditure incurred at the behest of the employee to keep the house in a comfortable living and habitable condition. The other item that is the subject‑matter of consideration is the property tax. In so far as the property tax is concerned, we are of the opinion, it is a statutory liability falling on the assessee as an owner. The assessee has necessarily to discharge its liability towards property tax, whether the house is in the occupation of the Deputy Chairman or not and the liability arises irrespective of the fact whether the asset is used by the Deputy Chairman or not. Since the liability falls on the assessee by the provisions of a statute as an owner of the house property, and the liability has to be incurred, whether the house. is in occupation or not, in our opinion, the amount paid by way of property tax cannot be regarded as an expenditure falling within the ambit and scope of section 40A(5) of the Act. The decision of the Karnataka High Court in the case of CIT v. Motor Industries Co. Ltd. (No.2) (1998) 229 ITR 137, is also to the effect that the municipal tax and ground rent in respect of the building used as residential quarters cannot be considered as perquisites within the meaning of section 40A(5) of the ‑Act. We are in agreement with the Karnataka High Court to the extent to which it held that the property tax cannot be the subject‑matter of ceiling under section 40A(5) of the Act.
In the result, we answer two questions of law as under:
First question: It is answered in the affirmative and against the assessee.
Second question: Our answer to the second question is that the expenditure incurred by the company on the house used by the Deputy Chairman towards electricity charges, depreciation and repairs should be included in arriving at the amount to be disallowed under section 40A(5) of the Act and in so far as the expenditure by way of property tax is concerned, that cannot be a subject‑matter of ceiling under section 40A(5) of the Act.
The Revenue shall be entitled to costs of Rs.1,000.
M.B.A./220/FC Reference answered.