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1996 DIGILAW 420 (MAD)

Commissioner of Income Tax v. Sundaram Industries

1996-03-26

K.A.THANIKKACHALAM, N.V.BALASUBRAMANIAN

body1996
Judgment :- THANIKKACHALAM, J. At the instance of the Department, the Tribunal referred the following question for the opinion of this Court under s. 256(1) of the IT Act, 1961 "Whether the amount of depreciation allowed to the assessee on cars maintained by it and which has been used if not wholly at least partly for the personal purposes of the directors, can be taken into consideration for purposes of disallowance in excess of the prescribed limit of Rs. 72, 000 ?" 2. The assessee is a private limited company. It maintained some cars for the purpose of business. The contention of the Revenue was that since the cars were also used for the personal use of the directors, depreciation allowable on the written down value of the cars should be proportionately reduced and disallowed by applying s. 40(c) of the IT Act. The Tribunal for the earlier assessment years held that s. 40(c) provides for disallowance of any expenditure or allowance in respect of any assets of the company used by any person either wholly or partly for his own purposes or his benefit, but the proviso indicated that the allowance referred to in the section must be one capable of being adjudged as excessive or unreasonable. The Tribunal found that depreciation which is allowable at a prescribed rate is an allowance which can never come for adjudication as excessive or unreasonable and, therefore, the deduction for depreciation had to be given without any disallowance under s. 40(c) even if the cars had been used for personal purposes of the directors 3. Before us, learned standing counsel for the Department relied upon the decision of the Supreme Court in the case of C.W.S. (India) Ltd. vs. CIT 1994 (208) ITR 649, 1994 (3) JT 116 , 1994 (1) Scale 840 , 1994 (S2) SCC 296, 1994 (118) CTR 118, 1994 (73) TAXMAN 174, 1994 UPTC 981, 1994 (118) CTR(SC) 118 (SC) : TC 18R.625 wherein the Supreme Court held that the expression "allowance" in s. 40(a)(v) and s. 40A(5)(a)(ii) takes in depreciation allowance and the ceiling on expenditure provided under these provisions applies also to depreciation allowance on all assets belonging to the employer-assessee used by an employee. Therefore, according to learned standing counsel, the Tribunal was not correct in stating that the deduction for depreciation had to be given without any disallowance under s. 40(c) even if the cars had been used for personal purposes of the directors. On the other hand, learned counsel appearing for the assessee submitted that a reading of the order passed by the Tribunal would go to show that the Tribunal had not given a definite finding as to whether allowance of depreciation is also subject to s. 40(c) of the Act. Hence, a request was made to direct the Tribunal to give a definite finding on this issue 4. We have heard learned standing counsel as well as learned counsel appearing for the assessee The fact remains that the joint managing director, Ravindran, has been paid remuneration of Rs. 60, 000 and other payments by way of perquisites amounting to Rs. 22, 190. Applying the provisions of s. 40(c), a sum of Rs. 72, 000 was held to be admissible and the excess of Rs. 10, 190 was disallowed. It was held by the Supreme Court in C.W.S. (India) Ltd. vs. (supra) that in the teeth of the language employed, both s. 40(a)(v) and s. 40A(5)(a)(ii) speak of any allowance in respect of any assets of the assessee used by an employee. The asset may be a building, a car, refrigerator or an air-conditioner or any other asset. The allowance in respect of such assets certainly means and includes depreciation allowance on such assets. In the present case, the Tribunal held that the deduction for depreciation had to be given without any disallowance under s. 40(c) even if the cars had been used for personal purposes of the directors. In view of the abovesaid decision of the Supreme Court C.W.S. (India) Ltd. vs. CIT (supra). Sec. 40(c)(ii) includes both expenditure as well as allowance in respect of any assets of the company used by any person referred to in sub-cl. (i) either wholly or partly for his own purposes or his benefit. Therefore, the abovesaid decision of the Supreme Court would also be applicable while claiming deduction in respect of expenditure. Therefore, if the asset of the company is used for personal purposes of the directors, the expenditure has got to be allowed in accordance with s. 40(c) of the Act. Therefore, the abovesaid decision of the Supreme Court would also be applicable while claiming deduction in respect of expenditure. Therefore, if the asset of the company is used for personal purposes of the directors, the expenditure has got to be allowed in accordance with s. 40(c) of the Act. Therefore, in the case of allowance of expenditure as well as allowance for depreciation, if the asset of the company is used for personal purposes of the directors, then the expenditure claimed or the depreciation claimed ought to have been allowed by taking into consideration the provisions contained in s. 40(c) of the Act. In that view of the matter, we answer the question referred to us in the affirmative and in favour of the Department. There will be no order as to costs.