Ajit K. Sengupta, J.
1. In this reference under Section 256(2) of the Income-tax Act, 1961, for the assessment year 1980-81, the following question of law has been referred to this court :
'Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the repair expenses incurred by the assessee-company for the portion of the premises occupied by an employee should not be taken into account for the purpose of calculation of disallowance as perquisite under Section 40A(5) of the Income-tax Act, 1961?'
2. The facts relating to the question are that the assessee did not take into account the perquisite value in respect of the proportionate municipal taxes and repairing charges incurred by the assessee for the portion of the premises occupied by its employee, Shri H.P. Singhee. The Income-tax Officer disallowed Rs. 20,000 under Section 40A(5) being the estimated value of perquisite in respect of proportionate municipal taxes and repairingcharges incurred for the portion of the premises occupied by Shri H.P. Singhee. The disallowance was, however, deleted by the Commissioner of Income-tax (Appeals) in appeal.
3. Against the aforesaid order of the Commissioner of Income-tax (Appeals), the department appealed to the Tribunal. The Tribunal, following its earlier order for the assessment year 1979-80, confirmed the order of the Commissioner of Income-tax (Appeals) on the point. In the order of the Tribunal for the assessment year 1979-80, it has been stated by the Tribunal that municipal tax was payable in respect of the house owned by the company. Repairs were carried out by the company and it was the duty of the company to maintain the house which was owned by it. On these facts, the finding of the Commissioner of Income-tax (Appeals) on the point was upheld.
4. Learned counsel for the Revenue, at the outset, emphasised the legislative background of the restrictive provisions of Sections 40A(5) and 40(c)(v) of the Act. It has been urged that the intention of this Legislature was to curb the lavish expenditure incurred by the employers on providing remuneration, benefit or amenity to the employees, especially to the higher paid employees. Learned counsel first referred to the Finance Act, 1964, which substituted the old Sub-clause (iii) of Section 40(c) restricting the expenditure resulting directly or indirectly in the provision of any benefit or perquisite, whether convertible into money or not, subject to certain exceptions, to one-fifth of the amount of salary payable for the relevant period. The Finance Act, 1968, brought in a new Section 40(a)(v) operative from the assessment year 1969-70 onwards.
5. While introducing Section 40(a)(v), the Finance Minister mentioned in the Explanatory Note placed before Parliament the following as Objects and Reasons for introducing the provision (see [1968] 67 ITR 87) :
'(2) Expenditure on providing perquisites, benefits or amenities to higher paid employees in businesses and professions.--In the case of companies, the deductible amount of expenditure incurred by them in providing perquisites, benefits or amenities (subject to certain exceptions) to their higher paid employees is at present limited to 20 per cent. of the basic salary of each employee. It is proposed to extend this provision to non-corporate employers also and to bring within the purview of the limit any expenditure or allowance admissible to the employer in respect of any assets provided by him to the employee free of charge or on a concessional basis. Thus, where an employer has provided residential accommodation or household equipment such as frigidaires, air-conditioners, etc., ownedby him, to his employees free of charge, any expenditure incurred by the employer on the maintenance of these assets or any depreciation allowance admissible to him in respect thereof will also be brought within the purview of the limit over the deductible amount of expenditure in providing perquisites, benefits or amenities to employees. Further, it is proposed to lay down an alternative monetary limit of Rs. 1,000 per month for each employee over the deductible amount of expenditure incurred by the employer in providing perquisites, benefits or amenities to his higher paid employees. The proposed provision is sought to be made effective for and from the assessment year 1969-70.
This provision will apply also for the purposes of computation of 'Income from other sources'.'
6. Section 40(a)(v) was omitted with effect from assessment year 1972-73 and the same provisions were introduced in a broader form as Section 40A(5) which held the field for a long spell from the assessment years 1972-73 to 1988-89. Thus, there has been a clear thrust towards a restraint upon lavish expenditure incurred by the assessees for their higher paid employees. Learned counsel for the Revenue highlighted this aspect to impress upon us the necessity of construing the provision of Section 40A(5) comprehensively to remedy the mischief it was meant to suppress.
7. A mass of case law has evolved around the said provisions of Section 40(c)(iii), Section 40(a)(v) and Section 40A(5) of the Act. Learned counsel for the Revenue relied upon the decision of the Bombay High Court in CIT v. Yorkshire Insurance Co. Ltd. : [1986]162ITR565(Bom) . There, the issue was whether the depreciation in respect of the flat occupied by a director comes within the ambit of Section 40(a)(v) as perquisite. The court observed that Section 40 commences with the words 'Notwithstanding anything to the contrary in Sections 30 to 39'. Thus, Section 32 which deals with depreciation is also embraced by Section 40. Section 32 provides that, in respect of depreciation, inter alia, on buildings owned by an assessee and used for the purposes of its business, a deduction on account of depreciation would be allowed in the manner provided in Section 32. Therefore, deduction on account of depreciation is an allowance. Section 40(a)(v) spells out what shall not be deductible in computing profits of the business of any assessee. The allowances not deductible by virtue of that provision include any allowance in respect of assets of the assessee used by any of its employees. The court finally came to the conclusion that there is nothing in the provisions of Section 40(a)(v) as could exclude from the prohibition the allowance for depreciation. From this, learned counselsubmitted that, on parity of reasoning, repair expenses for the purposes of assets of the assessee-company which an employee has been allowed to use also attract the mischief of the said provisions. Since Section 40(a)(v) is in pari materia with Section 40A(5), the repair expenses incurred by the assessee in respect of the premises allowed to be occupied by an employee should also be an expenditure not deductible.
8. Our attention was also drawn to the decisions of the Kerala High Court on this particular issue. The Kerala High Court, overruling its earlier decision in CIT v. Travancore Tea Estates Co. Ltd. : [1980]122ITR557(Ker) , held in a Full Bench decision in CIT v. Forbes, Ewart and Figgis (P) Ltd. : [1982]138ITR1(Ker) , that Section 40(a)(v) as well as Section 40A(5) intends to fix a ceiling limit in some form or other. In that case, it has been held that the Tribunal was not right in allowing expenses for maintenance of the buildings beyond the limit specified in Section 40(a)(v) for the period when that provision was in force. In the case of Harrisons and Crossfield (India) Limited v. CIT : [1990]183ITR614(Ker) , the Kerala High Court held that, on a reading of Section 40(a)(v) or Section 40A(5) of the Income-tax Act, the entire expenditure incurred by the assessee for the maintenance of the building given for residence of its employees and the depreciation thereon can be taken into account for the purpose of disallowance under Section 40(a)(v)/40A(5).
9. Learned counsel for the assessee placed reliance on the decision of this court in CIT v. Davidson of India Private Ltd. : [1984]148ITR544(Cal) . There the assessee-company had taken on lease certain flats which it later on let out to its employees. The assessee incurred certain expenditure on the repairs of the flats. The Income-tax Officer disallowed the expenditure on the ground that it represented benefit or amenity to the employees attracting Section 40(c)(iii) of the Act. The Tribunal found that the assessee had to undertake the repairs in the normal course in order to maintain the flats. Therefore, the expenditure is not disallowable under Section 40(c)(iii).
10. Reliance was also placed on the decision of the Andhra Pradesh High Court in CIT v. Vazir Sultan Tobacco Co. Ltd. : [1988]173ITR290(AP) . There the buildings owned by the company were occupied by the directors and senior executives free of rent. The assessee claimed that the buildings should be treated as business assets and the cost of repairs to the buildings allotted to its employees and the expenditure incurred for replacement of crockeryused by the employees in the buildings allotted to them could not be considered as perquisites for the purposes of Section 40A(5).
11. Learned counsel for the Revenue sought to distinguish the facts in the case decided by this court in Davidson of India Pvt. Ltd. : [1984]148ITR544(Cal) on the ground that, in that case, the question decided was about the scope of Section 40(c)(iii) which was deleted by the Finance Act, 1968, with effect from the assessment year 1969-70. According to him, the implication of the subsequent amended provisions in a broader form as contained in Section 40A(5) did not fall for consideration by this court and is, therefore, not of any assistance to the point at issue. He sought to derive support from certain observations of this court in CIT v. Ashoka Marketing Ltd. : [1990]181ITR493(Cal) . The facts in that case were, however, altogether different. The house rent was paid by the company for the flats provided to the executives. The actual rent paid by the company for the flats was known and ascertained. This court, in that context, observed that, in such cases, Rule 3 of the Income-tax Rules, 1962, can have no manner of application. Rule 3 does not apply to the computation of the value of perquisite for making the disallowance under Section 40(a)(v)/40A(5) of the Act in the assessment of the employer-company. That rule is relevant only in valuing the perquisite provided by the company in the assessment of the employee. Anyway, the said decision in Ashoka Marketing Ltd.'s case : [1990]181ITR493(Cal) has no bearing on the present issue.
12. We have considered the arguments urged before us by both sides. We cannot accept the plea of learned counsel for the Revenue that the decision of this court in Davidson of India P. Ltd.'s case : [1984]148ITR544(Cal) is distinguishable and we should refrain from following that decision on that ground.
13. The moot question here is whether the company, by having to keep its property in good repairs and habitable, extends to its employees who happen to occupy the property, any benefits equivalent to the expenses incurred for such repairs. The company has, in any case, to maintain its property irrespective of whether it lets its employee occupy the property free of rent or on concessional rent. Therefore, the fact of occupation of the premises by the employee is totally extraneous to the provisions of Section 40(c)(iii) or 40(a)(v) or 40A(5) of the Act. No benefit or amenity can be said to enure to the employees. The benefits of the property being well-maintained and in good repairs are the benefits which exclusively belong to the company, the owner of the property. This was the rationale of thejudgment in Davidson of India P. Ltd.'s case : [1984]148ITR544(Cal) . This is evident from the penultimate paragraph of that judgment which is set out below (at page 545) :
'The finding of the Tribunal that the company will have to undertake repairs of the flats in the normal course has not been disputed. It appears that the company had taken on rent (on lease) certain flats which it had let out to its employees. In order to maintain them in good livable condition, the company incurred the expenditure in question for repairs of those flats. There is no evidence that the repairs increased the value of the flats. It is apparent that the company had to maintain the flats in good livable condition and the expenditure for repairs was undertaken to discharge that obligation. In the circumstances, it cannot be said that this expenditure conferred any benefit, amenity or perquisite to the employees within the meaning of Section 40(c)(iii).'
14. We, therefore, find no distinction which could indicate any departure from that ratio. The answer is, therefore, in the affirmative and against the Revenue and in favour of the assessee.
15. There will be no order as to costs.
Shyamal Kumar Sen, J.
16. I agree.