Law: Income Tax Act, 1961

Section: 40

Income-tax----Business expenditure---Disallowance---Limits on certain expenditure on employees towards benefit or perquisites---Disallowance of excess--­Extent of disallowance---Provisions of statute to be applied---Rule relating to computation of such benefits perquisite to assess it in hands of employee not relevant---Indian Income Tax Ordinance, 1961, &40A(5)---Indian Income Tax Rules, 1962, R.3---[CIT v. Britannia Industries Co. Ltd. (1982) 135 ITR 35 (Cal.) and Geoffrey Manners & Co. Ltd. v. CIT. (1996) 221 ITR 695 (Bom.) overruled]. Section 40A(5)f the Income Tax Act, 1961, and rule 3 of the Income Tax Rules, 1962, deal with different situations and different assts of assessees-one dealing with the employer-assessee and the other with the employees-assessee. Rule 3 deals with valuation of the perquisites or benefits for the purposes of computing the income of the employee chargeable under the head "salaries", whereas section 40A(5) deals with the computation of income under the head "Profits and gains of business or profession" of the employer. The object of section 40A(5) was to discourage employer-assessees from incurring expenditure which resulted directly or indirectly in the provision of any benefit, amenity or perquisite to their employees beyond a particular limit and any expenditure beyond the prescribed limit was liable to be disallowed. Section 40A(5) constitutes a composite scheme. The employer will be able to claim deduction of expenditure, such as salaries, remuneration, perquisites, etc., up to the ceiling provided in that section. It does not contemplate deduction-of the notional value of perquisites assessed in the hands of employees: it contemplates the deduction of actual expenditure or on estimate basis where the details of the actual expenditure are not furnished. The employer having incurred the expenditure on the perquisite should be able to provide its figures; if he cannot it is fair that the expenditure should be assessed on a realistic basis and not on the basis of rule 3 which applies qua the employee, who cannot provide the figures of actual expenditure since it is not he who has incurred it. There is no anomaly in…

Deprecated: trim(): Passing null to parameter #1 ($string) of type string is deprecated in /home/digixyei/sldsystempk.com/view/master-layout/view_case.php on line 492