Upendralal Waghray, J.
1. This reference under section 256(1) of the Income-tax Act, 1961, is made at the instance of the Revenue and the following questions have been referred :
'1. Whether, on the facts and in the circumstances of the case, the cost of repairs to buildings owned by the assessee and taken on lease by the assessee and allotted to its employees could be treated as a perquisite for the purpose of section 40(c)(iii) 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 the highly paid employees could be treated as business assets of the assessee
3. Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was justified in treating the bonus paid to the employees as part of the salary instead of treating the same as perquisites under section 40(c)(iii) of the Income-tax Act, 1961
4. Whether, on the facts and in the circumstances of the case, the depreciation furniture provided by the employer and on the buildings owned by the assessee is in the nature of a perquisite under section 40(c)(iii) of the Income-tax Act
5. Whether, on the facts and in the circumstances of the case, the replacement of crockery and cutlery to the employees is a perquisite under section 40(c)(iii) of the Income-tax Act, 1961
6. Whether, on the facts and in the circumstances of the case, the medical expenses paid to the employees are a perquisite under section 40(c)(iii) of the Income-tax Act, 1961 ?'
2. The controversy relates to the two assessment years, viz., 1965-66 and 1967-68. The Income-tax Officer had disallowed certain expenditure incurred by the assessee-company during and said assessment years relying upon the provisions of section 40(c)(iii) as it existed at the relevant time. On the two appeals by the assessee-company, the Commissioner of Income-tax (Appeals) granted relief in part. The assessee-company filed two further appeals before the Tribunal, in so far as the relief was denied, and the Income-tax Officer filed two appeals to the extent relief was granted to the assessee. The Tribunal has, by a common judgment, following its own earlier judgment in the assessee's appeals for the assessment year 1968-69 and 1969-70 during which period, sub-clause (iii) was replaced by sub-clause (v). Sub-clause (iii) to section 40(c) was first added by the Finance Act, 1963, bust the original sub-clause was substituted by the Finance Act, 1964, with effect from April 1, 1964. Again, with effect from April 1, 1969, sub-clause (iii) was omitted by the Finance Act, 1968, and in its place, sub-clause (v) was inserted. This sub-clause (v) was in turn replaced by section 40A(5) with effect from April 1, 1972. For the purpose of this case, we are concerned with section 40(c)(iii)as it stood with effect from April 1, 1964.
'40. Notwithstanding anything to the contrary in sections 30 - 39, the following amounts shall not be deducted in computing the income chargeable under the head 'Profits and gains of business or profession',....
(c) in the case of any company -......
(iii) any expenditure incurred after the 29th day of February, 1964, which results directly or indirectly in the provision of any benefit or amenity or perquisite, whether convertible into money or not, to an employee (including any sum pain by the company in respect of any obligation which but for such payment would have been payable by such employee), to the extent such expenditure exceeds one-fifth of the amount of salary payable to the employee for any period of his employment after the aforesaid date :
Provided that in computing the aforesaid expenditure any payment by way of gratuity or the value of any travel concession or assistance referred to in clause (5) of section 10 or passage moneys or the value of any free or concessional passage referred to in sub-clause (i) or any payment of tax referred to in sub-clause (vii) of clause (6) of that section or any sum referred to in clause (vii) of sub-section (1) of section 17 or in clause (v) of sub-section (2) of that section or the amount of any compensation referred to in clause (i) or any payment referred to in clause (ii) of sub-section (3) of that section or any payment referred to in clause (iv) or clause (v) or any expenditure referred to in clause (ix) of sub-section (1) of section 36 shall not be taken into account :
Provided further that nothing in this sub-clause shall apply to any expenditure which results directly or indirectly in the provision of any benefit or amenity or perquisite to an employee whose income chargeable under the head 'Salaries' is seven thousand five hundred rupees or less.'
(Extracted from the book 'The Law and Practice of Income-tax', by Kanga and Palkhivala, Seventh Edition, Volume I, page 513)
Question No. 1 : The assessee had, for providing residential accommodation to its employees, taken on lease some buildings. It had also provided accommodation to some of its employees in buildings owned by it. During the relevant periods, the assessee claimed the amount spent for repairs of the said buildings as business expenditure. This was disallowed by the Income-tax Officer with reference to section 40(c)(iii), but the Appellate Tribunal has taken a different view.
3. Counsel for the Revenue has relied upon a decision of the Full Bench of the Kerala High Court in CIT v. Forbes, Ewart & Figgis (P.) Ltd. : [1982]138ITR1(Ker) and contended that the said expenditure is a perquisite provided to the employee and if it exceeds the allowable ceiling, it cannot be allowed as a deduction. In this case, as the said amounts exceeds the limit contemplated by the Act, it cannot be allowed as a deduction and has to be included in the taxable income of the assessee-company.
4. Counsel for the assessee has, however, placed reliance on the decision of the Calcutta High Court in CIT v. Davidson of India Pvt. Ltd. : [1984]148ITR544(Cal) and contended that the expenditure on maintenance and repairs with respect to the said houses cannot be treated as a benefit, amenity or perquisite to the employee and the repairs were undertaken by the company in the normal course. Any expenditure incurred by an owner for normal maintenance and keeping the building in good repair will be its obligation vis-a-vis an occupant life an employee unless there is a contract to the contrary.
5. The terms of the lease or the quantum of expenditure on each house are not available. Section 108 of the Transfer of property Act deals with the rights and liabilities of lessor and lessee. Section 108(m) reads as follows :
'108. In the absence of a contract or local usage to the contrary, the lessor and the lessee of immovable property, as against one another, respectively, possess the rights and are subject to the liabilities mentioned in the rules next following or such of them as are applicable to the property leased :-... (m) the lessee is bound to keep, and on the termination of the lease to restore, the property in as good a condition as it was in at the time when he was put in possession, subject only to the changes caused by reasonable wear and tear or irresistible force, and to allow the lessor and his agents, at all reasonable times during the term, to enter upon the property and inspect the condition thereof and give or leave notice of any defect in such condition; and, when such defect has been caused by any act or default on the part of the lessee, his servants or agents, he is bound to make it good within three months after such notice has been given or left.'
6. In the absence of any contract to the contrary, it is the obligation of the lessee to keep and maintain the leased premises in good condition. In respect of the leased buildings, the assessee-company is the lessee. Any expenditure incurred for this purpose is the obligation of the company. It is not the case of the Department that any unusual or extraordinary amounts were spent for the houses. The ratio of the Calcutta decision which is with reference to section 40(c)(iii) applies to this case. The decision of the Kerala High Court was with reference to the subsequently introduced provision, viz., section 40(c)(iii), which in its second limb refers to expenditure spent on the assets of the assessee. This has also been brought out in the said decision. In this case, we are concerned with section 40(c)(iii) and have proceeded on the basis that the expenditure incurred was for maintaining and keeping the buildings in good repair in respect of the buildings belonging to the assessee-company or taken on lease by it for providing accommodation for its employees. Though the Tribunal has followed its earlier decision under section 40(a)(v), we do not consider it necessary to go into the interpretation of the said clause, as the relevant clause applicable to this case is section 40(c)(iii). For the purpose of this case, we agree with the view of the Calcutta High Court. We do not want to express any opinion on the interpretation of section 40(c)(iii)as it does not arise in this case. We answer question No. 1 in the negative, against the Revenue and in favour of the assessee-company.
Question No. 2 : this question does not arise from the order of the Tribunal and we do not find any facts which have a bearing on this question. We, therefore, decline to answer this question.
Questions Nos. 3 and 6 : These relate to payment of bonus and medical expenses already incurred on the employees. Both counsel do not dispute that in view of the decision of this court in CIT v. Warner Hindusthan Ltd. : [1986]160ITR217(AP) , these are not perquisites. We, therefore, answer question No. 3 in the affirmative and question No. 6 in negative both against the Revenue and in favour of the assessee.
Question No. 4 : Whether the depreciation allowance in respect of the buildings and furniture owned by the assessee-company which have been used for providing accommodation to its employees is to be treated as a part of perquisite for the purpose of calculating the ceiling allowable under the Act for the purpose of section 40(c)(iii) : Counsel for the Revenue has placed reliance on the Full Bench decision of the Kerala High Court in CIT v. Forbes, Ewart & Figgis (P.) Ltd. : [1982]138ITR1(Ker) , already referred to under question No. 1 and also a decision of the Bombay High Court in CIT v. Yorkshire Insurance Co. Ltd. : [1986]162ITR565(Bom) . Both these decisions are under section 40(c)(iii). As already pointed out while dealing with question No. 1, the scope of section 40(c)(iii) is wider than section 40(c)(iii) which has also been brought out by the Kerala High Court with reference to the statements of objects and reasons and the Finance Bill by which section 40(c)(iii) was introduced. The Tribunal has relied upon its earlier decision under section 40(c)(iii), but as the present case arises under section 40(c)(iii), we would like to confine our decision to a consideration under the said provision only. In view of the difference in language in sections 40(c)(iii)and 40(a)(v) in which the further limb was added, as noticed by the Kerala High Court, we consider that the depreciation allowance, which could only be in section 40(c)(iii) for denial of deduction. We do not express any opinion regarding the effect of section 40(a)(v) as it does not arise in this case. The question is, therefore, answered in the negative, against the Department and in favour of the assessee.
Question No. 5 : This relates to the amount spent by the assessee for replacing the crockery and cutlery at the residences of its various officers. The provision of crockery and cutlery is an amenity provided by the employer within the meaning of section 40(c)(iii). It is, however, contended by counsel for the assessee that even if it is an amenity, the entire cost of the crockery and cutlery replaced cannot be disallowed and the value of its user alone can be disallowed. We are not able to accept this contention. The company has spent amounts for making available the crockery and cutlery as an amenity. Having regard to its nature, replacement could be either for breakages or the desire to change the old crockery and cutlery. In view of this, the amount spent for replacement is an expense incurred for the amenities. If, by its inclusion as a perquisite or amenity, the permissible ceiling under the Act is exceeded, it cannot be allowed as a deduction in view of the language of section 40(c)(iii). This question is, therefore, answered in the affirmative, in favour of the Revenue and against the assessee-company.
7. Our answers to the questions referred are as follows :
Question No. 1 : We answer this question in the negative, against the Revenue and in favour of the assessee-company.
Question No. 2 : We decline to answer this question.
Question No. 3 : we answer this question in the affirmative, against the Revenue and in favour of the assessee.
Question No. 4 : We answer this question in the negative, against the Department and in favour of the assessee.
Question No. 5 : We answer this question in the affirmative, in favour of the Revenue and against the assessee-company.
Question No. 6 : We answer this question in the negative, against the Revenue and in favour of the assessee.
The reference is accordingly answered. No costs.