COMMISSIONER OF INCOME-TAX vs. ELECON ENGG. CO. LTD.

ITR/104/1992HC GujaratGJHC24015451199228 August 2003Author: HONOURABLE MR. JUSTICE D.H.WAGHELA,HONOURABLE MR. JUSTICE D.A.MEHTA6 pages
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What were the facts?

The Income Tax Appellate Tribunal (ITAT) Ahmedabad Bench 'C' referred two questions of law to the High Court of Gujarat at Ahmedabad, at the instance of the Commissioner of Income Tax. The assessment year was 1982-83, corresponding to the accounting period ending December 31, 1981. The first question concerned whether the difference between the written-down value (WDV) and market value of cars given to employees should be treated as a perquisite for disallowance under Section 40A(5)/40(c). The second question related to the deletion of a sum of Rs. 52,72,845 paid as technical design fee to M/s. Weserhutte A.G., West Germany. The High Court heard arguments from both the revenue and the assessee.

What did the High Court hold?

The High Court answered both questions. For the second question, it was held that the issue was concluded by a prior decision of the same court in the assessee's own case for Assessment Year 1981-82, where it was held that the know-how was acquired on behalf of another company and never utilized by the assessee, entitling the assessee to the allowance. Therefore, question 2 was answered in the affirmative, in favour of the assessee. For the first question, the court held that Sections 40(c) and 40A(5) require the incurring of an expenditure by the company as a prerequisite for disallowance. In this case, the assessee company had not incurred any expenditure; they had merely given away cars at their WDV. The assessing officer's estimation of market value and disallowance as a perquisite was not permissible as no expenditure was incurred. The court also noted there was no provision allowing the AO to substitute the sale price. Therefore, question 1 was answered in the negative, in favour of the assessee, and the order of the Tribunal was upheld. The reference was disposed of accordingly.

What were the issues?

1. Whether, in law and on facts, the difference between the written-down value (WDV) and the market value of cars given to employees was to be treated as a perquisite for working out the disallowance under Section 40A(5)/40(c) of the Income Tax Act, 1961? The assessee contended that no expenditure was incurred by the company, and the cars were given away at their WDV. The revenue argued that the difference between the WDV and market value constituted a perquisite. 2. Whether, in law and on facts, the Tribunal was right in upholding the deletion of the sum of Rs. 52,72,845 paid as technical design fee to M/s. Weserhutte A.G., West Germany? The revenue challenged the deletion of this amount. The assessee relied on a previous High Court decision in their own case for the assessment year 1981-82.

Which sections of the Income-tax Act were involved?

Section 40A(5),Section 40(c)

AI-generated summary — verify with the full judgment below

IN THE HIGH COURT OF GUJARAT AT AHMEDABAD

INCOME TAX REFERENCE No 104 of 1992

For Approval and Signature:

HON'BLE MR.JUSTICE D.H.WAGHELA and HON'BLE MR.JUSTICE D.A.MEHTA ============================================================ 1. Whether Reporters of Local Papers may be allowed : YES to see the judgements?

2.

To be referred to the Reporter or not? : YES

3.

Whether Their Lordships wish to see the fair copy : NO of the judgement?

4.

Whether this case involves a substantial question : NO of law as to the interpretation of the Constitution of India, 1950 of any Order made thereunder?

5.

Whether it is to be circulated to the concerned : NO Magistrate/Magistrates,Judge/Judges

The order continues below.

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