Law:

Section:

Section 40(c) of the Income-tax Act, 1961 - Business disallowance - Remuneration, etc., paid in excess of prescribed limit in case of company etc. - Assessment year 1966-67 - Whether where value of perquisite of a car provided by assessee company to its employees was taken in hands of employees for purpose of their assessment under head "income from salaries" at Rs. 150 per month, same value should be taken in hands of assessee for purpose of working out ceiling under section 40(c)(iii) - Held, yes FACTS For the assessment year 1966-67, the assessee company claimed that the value of the perquisite of free car provided to the employees should be worked out under rule 6D of the Income-tax Rules, 1962. The ITO, however did not agree with the assessee and, instead, held that the value of the perquisite of the free car provided to employees should be 50 per cent of the expenditure on running and maintenance of the car and on that basis the ITO worked out the addition in excess of the ceiling laid down under section 40(c)( iii). On second appeal the Tribunal found that the ITO had not considered what was the total use of the cars and what was the use of the cars relating to the personal work of the employees and there was, therefore, no material in support of the ITO's estimate that 50 per cent of the expenses relating to the maintenance and running of the car were for the personal use of the employees. In the above circumstances, the Tribunal held that since under rule 3 of the Income-tax Rules, 1962, the value of the perquisite of the free car provided to the employees for the purpose of assessment under the head "Salaries" would be Rs. 150 per month, the value of the perquisite in the hands of the employer, that is, the assessee, for the purpose of the ceiling under section 40(c)( iii) should also be taken at the same amount, that is Rs. 150 per month per employee. On reference : HELD There was no dispute about the fact that there was no material in support of the contentions made by the department that the cars were allotted to the employees exclusively for their full time use. It was also found by the ITO in a roundabout way that the car was used both for the…

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