ORDER
Mohan Singh, J.M.
1. The appeal by the revenue and the assessee’s cross-objections arise out of the order of the CIT(Appeals) II, Madras dated 22-11-1983 relating to the assessment year 1980-81.
2. The assessee derives income from salary, property and other sources. The first ground taken by the department is to the effect that the CIT(A) erred in holding that the value of perquisites in respect of Adayar House’ used by the assessee should be computed at Rs. 7,500 being the annual letting value of the property and it should not be computed at Rs. 54,000 having regard to the fair market value of the benefits obtained by the assessee. As no rent was paid for the occupation of the said property owned by Messrs South India Corporation Agencies (P.) Ltd., the assessee offered Rs. 7,500 as the perquisite. In his order under section 143(3) r.w. section 144B(4) dated 21-9-1983, the Assessing Officer estimated the value of the perquisites at Rs. 54,000. On appeal, the CIT(A) directed the Assessing Officer to accept the value of perquisite as returned by the assessee, especially since the property in question is also used for official purposes. As against this order of the CIT(A), the revenue is in appeal before the Tribunal.
3. The Departmental Representative supported the order passed by the Assessing Officer. The assessee’s counsel, on the other hand, filed a paper book containing, inter alia, the order of the Tribunal dated 6-6-1984 in ITA Nos. 2041 and 2402/Mad./83, in the assessee’s own case for the assessment years 1978-79 and 1979-80, wherein the perquisite value of the property in question was fixed by the Tribunal at 60% of the municipal valuation of Rs. 29,450, i.e., Rs. 18,000. He, therefore, argued that the same value be adopted for this assessment year also, i.e., at 60% of the annual letting value as fixed by the Corporation of Madras. In any event, the assessee’s counsel submitted that there is no change in the facts for the assessment year under consideration.
4. Since, in our opinion, the finding of the first appellate authority on this issue is in consonance with the value fixed by the Madras Corporation, we do not see any reason to interfere with his order on this issue and this ground taken by the department is, accordingly, rejected.
5. In the next ground, the department contends that the first appellate authority erred in deleting the addition made towards electricity charges and telephone expenses as perquisites for the user by the assessee. The CIT(A) deleted the said additions observing that they are incurred not solely for the assessee’s benefit but also for maintaining the company’s office. He followed the decisions in the cases of CIT v. G. Venkataraman [1978] 111 ITR 444 (Mad.) and CIT v. Manjushree Plantations Ltd. [1980] 125 ITR 150/[1981] 5 Taxman 61 (Mad.). It is submitted by the assessee’s counsel that there is no error committed by the CIT(A) in the light of the, fact that he merely followed the binding decisions of the Madras High Court. We agree with this submission of the assessee’s counsel and dismiss the ground raised by the department as well.
6. In the next ground, the department urged that the CIT(A) erred in deleting the addition of Rs. 12,000 being the value of perquisites computed for the user of car of the company by the assessee for his personal use. The CIT(A) followed the decision of the Madras High Court in the case of G. Venkataraman (supra) in deleting this addition. The assessee’s counsel relied on the order of the CIT(A) and submitted that the CIT(A) was justified in following the binding decision of the Madras High Court in deleting the said addition. Since, there is no substance in this ground taken by the revenue as well, the finding of the CIT(A) is upheld and the ground raised by the department is rejected.
7. The next ground is to the effect that the CIT(A) erred in holding that the assessee is entitled to standard deduction in full in respect of the remuneration received from the company. We find that first appellate authority has only followed the decision in the case of G. Venkataraman (supra) in coming to the above conclusion, we do not find any infirmity in this finding of the CIT(A). This ground is also rejected.
8. The other ground raised by the department is that the CIT(A) erred in holding that the club subscriptions paid by the company on behalf of the assessee should not be treated as perquisites. While, so holding the CIT(A) has accepted the argument of the assessee that he joined the clubs only as directed by the company and for the company’s benefit. We find that the Assessing Officer’s proposal to treat this amount as perquisite in the hands of the assessee was approved by the IAC in his order under section 144B(4), on the ground that the subscription paid by the company for memberships will create a benefit for the assessee and that an element of perquisite is involved. After hearing both the parties, we are satisfied that the action of the first appellate authority on this issue has to be confirmed as he followed the decision of the Tribunal in the case of Vulcan Alloys & Industries (P.) Ltd. [1983] Taxation 68/2 (Ahd.). We also find force in the assessee’s contention that the membership fee paid to clubs in turn indirectly promoted the business interest of the assessee’s company, which paid the club subscription. In these circumstances, this ground of the revenue is also rejected.
9. In the next ground, the department urged that the CIT(A) erred in holding that the sum of Rs. 25,000 should be allowed as a deduction in computing the assessee’s income earned from consultancy services. During the assessment year, the assessee claimed Rs. 35,093 as expenditure incurred out of Rs. 45,000 earned as consultancy fee. The CIT(A) held that even in the absence of verifiable accounts, the Assessing Officer should allow a portion of the expenses on an estimate basis. He further recorded a finding that the assessee had in fact paid a sum of Rs. 5,000 each to Sri A.C. Muthanna, Sr. Advocate and to Shri K.C. Krishnaswamy, C.A. He finally directed the Assessing Officer to allow Rs. 25,000 and retain the disallowance of Rs. 10,093. Before us, the assessee’s counsel stated that though the Tribunal had confirmed similar disallowance for the assessment year 1979-80 on the ground that no evidence for incurring the expenses were shown, during the year under consideration, there are evidences to prove the genuineness of the assessee’s claim, and, hence, the finding of the CIT(A) in this regard has to be upheld.
10. Here also, we agree with the contentions of the assessee’s counsel and for the reasons stated by the CIT(A), we find no reason to interfere with his order. This ground of appeal is also rejected.
11. In ground Nos. 21 to 24, the department questions the deletion of Rs. 95,632 being the addition made on the basis of seized materials from the premises of Sri I.K. Natarajan, General Manager, South India Sugars and assessee’s private secretary.
12. There was a search in the residential premises of the assessee under section 132 of the Income-tax Act, 1961 and during the course of which certain documents have been seized. The important evidence which has been used by the department for assessment in relation to the addition is a bunch of papers seized during the search from Sri Natarajan. The details of papers seized were relied on by the ITO as well as by the IAC. The Assessing Officer in the course of proceedings under section 143(3) r.w. section 144B(4), giving effect to the order passed by the IAC, has made an addition of Rs. 95,632 in the assessment year under consideration in the assessee’s hands. The Assessing Officer in his order has observed that based on the transactions contained in the slips ‘A’ and ‘B’ and also from the statement recorded from Sri Natarajan, the entire sum of Rs. 1,99,888.01 (Total receipts) must have been handed over to the said Natarajan in January 1980. The Assessing Officer issued a notice to the assessee on 7-1-1983, wherein the particulars of the seized papers and Mr. Natarajan’s statement were made available to the assessee. The assessee by his letter dated 16-2-1983 replied and offered a sum of Rs. 44,000 as ‘income from race bettings’. It was explained that the bunch marked ‘A’ & ‘B’ represented only the identity of the two separate sheets and do not refer to anything else. The Assessing Officer did not appreciate the explanation offered by the assessee and stated that Sri Natarajan has spoken in a clear and unambiguous terms to explain the nature of the slips and entries therein and also stated that Sri Natarajan has deposed that he has handed over a sum of Rs. 88,109.25 to the assessee. The Assessing Officer observed that the fact that the exact nature and source of the entire amount remains unexplained. Accordingly, he held that in the absence of satisfactory explanation for the nature and source of the two sums referred to in the sheet of paper they represent the income and treated the same as income from undisclosed sources and added the sum of Rs. 2,13,997. The IAC in the course of giving directions under section 144B analysed the issue and held that the addition under the head ‘Other sources’ should be limited to Rs. 95,632 which consists of Rs. 9,109 + Rs. 81,523 + Rs. 5,000, in the place of Rs. 2,13,997.
13. Before the CIT(A) it was contended on behalf of the assessee that the department had not discharged the onus cast upon it and there is no material evidence to show that the assessee had actually earned the income and incurred the expenditure in question. It was further contended that the provisions of sections 132(4A), 68, 69, 69A, 69C and 69D of the Income-tax Act cast the responsibility on the person who is responsible for making the entries and not on the assessee. It was contended that the assessee was not required to explain the nature as per the provisions of sections 68 and 69 of the Act as he is required to offer explanation only in respect of transactions found in his books of account of the business. The assessee’s counsel further reiterated the arguments raised before the IAC as well as the Assessing Officer.
14. The CIT(A) considered and analysed the issue in depth and held that the department has not established the live link to show that the papers found during the course of search relate to and belong to the assessee and in the absence of any such link being established, the addition in question was made on the basis of an uncorroborated statement and slips of papers taken from the residence of a third party. The Commissioner (Appeals) held that excepting the statement of Sri Natarajan there was nothing to show that the transactions in question relate to the assessee. The CIT(A) found this vital link has not been established in the present case and as held by the Hon’ble Supreme Court in the case of Parimisetti Seetharamamma v. CIT [1965] 57 ITR 532, the link has to be proved before coming to the conclusion that what was seized from Sri Natarajan’s residence represents the assessee’s transactions. The CIT(A) for the reasons stated in his order held that the addition in question is illegal and that the said addition cannot be made in the hands of the assessee in the present case unless the transactions are found in the books maintained by the assessee. As against this order of the CIT(A), the revenue is in appeal before us.
15. Before us, the Departmental Representative relied upon the orders passed by the IAC as well as the Assessing Officer whereas the assessee’s counsel reiterated the contentions raised before the CIT(A), namely, that the impugned addition is not justified inasmuch as held in many cases that on the basis of uncorroborated testimony and the evidence taken from the third party an assessment cannot be made in another person’s hands. He reiterated the contention that the very use of the material is objected, which according to him is unconnected with the business of the assessee and seized from the residence of a stranger. Further, the assessee’s counsel relied upon the decision of the Hon’ble Supreme Court in the case of Kishinchand Chellaram v. CIT [1980] 125 ITR 713/14 Taxman 29 to the effect that in the given circumstances, the burden was on the department to show that the money belonged to the assessee by bringing proper evidence on record and the assessee could not be expected to call third parties in evidence to help the department to discharge the burden that lay upon it. The assessee’s counsel stressed that the Supreme Court in the above case had held that even assuming that the letters were to be taken into account, those letters would at the highest establish that an employee of the assessee remitted the amount from Madras and another employee received at Bombay on behalf of the assessee. Placing reliance on the said judgment of the Supreme Court, the assessee’s counsel stated that even in the present case, the department had not established that the receipts represent income of the assessee that Shri Natarajan has been making transactions on behalf of the assessee. Reliance was also made on the decision of Parimisetti Seetharamamma’s case (supra) wherein the Supreme Court held that the burden of proving that the receipts belonged to the assessee lies on the department before making an addition against such receipts. The IAC or the ITO had not done so in the present case before arriving at the inference that the receipts are assessable in the assessee’s hands on the ground that the assessee has failed to let in any evidence. It is, therefore, submitted that the finding of the CIT(A) on this issue be accepted and the addition deserves to be deleted. To a specific query raised by the Bench whether, the principles laid down by the Supreme Court regarding burden of proof and nature of receipts is satisfied in the instant case, the Departmental Representative answered that the department had taken the statements, etc., and relied heavily on the order passed by the Assessing Officer.
16. We find force in the assessee’s contentions. As held by the Hon’ble Supreme Court in the case of Kishinchand Chellaram (supra), the department, in the present case, has not established that the money in question belong to the assessee by bringing in proper evidence on record and, hence, we hold that in the absence of corroborative evidence of third party, no addition could be made. We, accordingly, uphold the finding of the CIT(A) on this issue also.
17. Ground Nos. 25 to 32 in the departmental appeal are to the effect that the CIT(A) erred in deleting the computation of long-term capital gains on sale of horse ‘Sugar Prince’. The assessee had not admitted the capital gains on the sale of this horse. It was contended by the assessee that he had not incurred any expenditure to acquire this horse as the entire expenditure has been incurred by the stud-farm who get in return a share in the sale price of the colt. This horse was born to ‘Pussy Galore’ and Prince Pradeep’, owned by the assessee previously. Relying on the decision in the case of CIT v. K. Rathnam Nadar [1969] 71 ITR 433 (Mad.), the assessee’s counsel contended that the Assessing Officer in the absence of details estimated the cost of acquisition in the form of covering charges incurred at Rs. 1,000 and took the balance of Rs. 15,664 as capital gains (long-term). The CIT(A) held that the expenditure incurred for maintenance of a horse or the covering charges incurred cannot be taken as the cost of progeny. There are so many other expenses like vetenary charges to post-natal and ante-natal medical care, upbringing, etc., which results in a saleable horse. The actual cost of the colt sold to the owner is not capable of being ascertained as there is no direct cost to the assessee in the up-bringing of the horse sold. The connection between the sale of the horse and the maintenance of its parents is too remote. The CIT(A) found that under the agreement, the assessee does not maintain the cost of bringing up the colt but bears only a portion of the cost of the parents. He, therefore, held that the computation of capital gains is incorrect as the cost of acquisition is not ascertainable and replying upon the decision of the Supreme Court in the case of CIT v. B.C. Srinivasa Setty [1981] 128 ITR 294/5 Taxman 1, deleted the said addition.
18. We have considered the rival submissions and perused the papers filed before us. We agree with the CIT(A) that the facts of the case are exactly the same as in the case of Srinivasa Setty decided by the Hon’ble Supreme Court (supra). Further, the Andhra Pradesh High Court in the case of Sri Krishna Dairy & Agrl. Farm v. CIT [1988] 169 ITR 291 held that the birth of calves was incidental to the business activity of the assessee and though it is difficult to visualise them as assets, as there was no cost of acquisition of the calves, the gains which arose on such sale were not liable to tax as capital gains. In so holding, their Lordships of the Hon’ble Supreme Court followed their earlier decision in the case of B.C. Srinivasa Setty (supra). We also find force in the contention of the assessee’s counsel that the off-spring of the assessee’s horse is a capital asset for which no expenditure has been directly incurred and as such the cost is not capable of being ascertained. In view of the aforesaid Supreme Court’s decisions, we hold that because there was no cost of acquisition of the horse the CIT(A) was justified in holding that there was no capital gain on the sale of horse ‘Sugar Prince’. This ground of appeal is also dismissed.
19. In the cross-objection filed by the assessee, it was contended that CIT(A) while disposing of the assessee’s appeal for the assessment year under consideration declined to entertain the additional grounds of appeal filed before him seeking the allowance of capital loss in respect of Horse ‘Sugar Prince’. After hearing the parties, we deem it fit to set aside this issue to the file of the CIT(A) to consider the assessee’s claim in this regard after admitting the assessee’s additional ground and decide the issue on merits.
20. In the result, the departmental appeal is dismissed and the cross-objection filed by the assessee is treated as allowed for statistical purposes.
Shri T.V.K. Natarajachandran, Sr. Vice-President
1. I have carefully gone through the order proposed by my learned brother, the Judicial Member, but I am unable to agree with his conclusions in respect of certain points detailed below and, hence, I am recording my order of dissent.
2. Rent-free accommodation – The assessee filed return on 9-10-1980 offering perquisites of Rs. 7,500. The Assessing Officer determined the same at Rs. 1,08,000. The Commissioner (Appeals) directed the Assessing Officer to accept the perquisites offered by the assessee. My learned brother has held that the finding of the Commissioner (Appeals) is in consonance with the value fixed by the Municipal Corporation and, therefore, the direction given by the Commissioner (Appeals) was upheld by him. In my opinion, this conclusion of my learned brother is patently wrong inasmuch as the Tribunal by its order dated 6-6-1984 in ITA Nos. 2401 & 2402 (Mad.)/1983 relating to the assessment years 1978-79 and 1979-80, found at pages 31 to 33 of the paper book, has held that in the absence of any other material in evidence, the annual letting value would be relevant for this purpose and 60 per cent of the accommodation is used for personal purposes and, therefore, it is taken at Rs. 18,000. In view of the decision of the Tribunal, the order of the Commissioner (Appeals) on this point is set aside and the Assessing Officer is directed to adopt 60 per cent of the relevant annual letting value or in the absence of such annual valuation adopt the perquisites of Rs. 18,000 as adopted by the Tribunal for the earlier assessment years.
3. Reimbursement of electricity charges – While the Assessing Officer adopted Rs. 12,030 out of Rs. 20,550, the Commissioner (Appeals) held that such cash payments are not perquisites. Electricity was consumed for official business also. Therefore, he deleted the addition. This decision was upheld by my learned brother, which is not justified. This order of the Commissioner (Appeals) was passed on 22-11-1983 before the order of the Tribunal for the earlier assessment years 1978-79 and 1979-80 passed on 6-6-1984. In view of the aforesaid order of the Tribunal, 60 per cent of the electricity charges could be disallowed The order of the Commissioner (Appeals) is set aside.
4. Reimbursement of telephone bills – While the Assessing Officer determined the perquisites at Rs. 9,450, the Inspecting Assistant Commissioner has confirmed such computation. The Commissioner (Appeals) deleted the same holding that cash reimbursement is not at all perquisites. Keeping in view the latest decision of the Madras High Court in the case of Rane (Madras) Ltd. v. CIT [1995] 212 ITR 583 (which agreed with the Kerala High Court decision in the case of CIT v. Commonwealth Trust Ltd. [1982] 135 ITR 19/10 Taxman 258 (FB) and the order by the Tribunal dated 6-6-1984, I consider that it is reasonable to disallow at least 60 per cent of the reimbursement as perquisites pertaining to personal user of the telephone for non-business purposes. The order of the Commissioner (Appeals) is set aside.
5. Perquisites on user of car – While the assessee has not admitted any perquisites for user of the car, the Assessing Officer noted that the assessee has not debited any expenditure on the maintenance of the car in the personal books of the assessee. The draft assessment order for the assessment year 1979-80 in the assessee’s own case has been relied upon by the Assessing Officer to include Rs. 12,000 as perquisites for user of the car. He also stated that it is admitted in the course of assessment proceedings of M/s. South India Corporation (Agencies) Pvt. Ltd. that the assessee was using the cars belonging to the company and the value of the perquisites has been taken at Rs. 12,000 for the purpose of disallowance under section 40(c). Accordingly, he has adopted the value of Rs. 12,000 for this year. On appeal, the Commissioner (Appeals) accepted the plea of the assessee that the car has been used for business purposes only. Hence, he deleted the addition.
6. In view of the fact that in the case of M/s. South India Corporation (Agencies) Pvt. Ltd., the perquisite value of Rs. 12,000 has been taken into account for the user of the car by the assessee. For the purpose of section 40(c), the user of the car is established. Any unauthorised or illegal user of the car is also sufficient for valuation of perquisites – vide the decisions of the Madras High Court in the case of CIT v. A.R. Adaikappa Chettiar [1973] 91 ITR 90 and also in the case of CIT v. S.S.M. Lingappan [1981] 129 ITR 597/7 Taxman 71. Accordingly, the Commissioner (Appeals) is not justified in cancelling the addition. Therefore, the order of the Commissioner (Appeals) on this point is set aside and that of the Assessing Officer is restored.
7. Standard deduction – While, the Assessing Officer has not allowed any standard deduction on the ground that the remuneration received was assessed under the head ‘Other sources’ and not under the head ‘Salary’, the Commissioner (Appeals) allowed full deduction by relying on the decision of the Madras High Court in the case of G. Venkataraman (supra). My learned brother has upheld the order of the Commissioner (Appeals). I do not agree with the conclusion reached by my learned brother. Following my decision in respect of the perquisites relating to electricity, telephone and car, it is very clear that the assessee is not entitled to full standard deduction and, therefore, the decision of the Commissioner (Appeals) is not correct. Consequently, the order of the Commissioner (Appeals) is set aside on this point and the order of the Assessing Officer is restored.
8. Income from other sources – As a result of seizure of a bunch of papers from Shri Natarajan during the search operation, the Assessing Officer assessed a sum of Rs. 9,56,321 based on the directions of the Inspecting Assistant Commissioner. The Commissioner (Appeals) held that the vital link was not established by the department and except the statement of Shri Natarajan, there was nothing to show that this transaction related to the assessee. Shri Ramanathan was not questioned about the transaction. Alternatively, he held that if the transaction related to the assessee, only Rs. 9,059 is assessable and not the Full amount. Holding that the addition is illegal and excessive, he deleted the addition. This was upheld by my learned brother. I do not agree with the conclusion of my learned brother. In my opinion, there is adequate nexus or link between the assessee and Shri Natarajan, who is his private secretary. This being so, there can be several private dealings between them, which are not to be accounted for. For the various reasons given by the Deputy Commissioner in the directions given to the Assessing Officer and in view of the statement of Shri Natarajan, the addition made by the Assessing Officer is quite justified because when the statement of Shri Natarajan and the transaction were reported to the assessee, the assessee readily offered a sum of Rs. 44,000 as income from race betting as if this amount covered the receipts contained in the slips marked ‘A’ and ‘B’. Hence, I hold that the Commissioner (Appeals) was not justified in deleting the addition made by the Assessing Officer. Accordingly, the decision of the Commissioner (Appeals) on this point is set aside and the addition made by the Assessing Officer is sustained.
9. In the result, the departmental appeal is partly allowed and the cross objection filed by the assessee is treated as allowed for statistical purposes.
REFERENCE UNDER SECTION 255(4) OF THE INCOME-TAX ACT, 1961
Since, we have differed in our conclusion, we have prepared the following points of difference of opinion for consideration of the Third Member under section 255(4) of the Income-tax Act, 1961 :-
“1. Whether, on the facts and in the circumstances of the case, the perquisite value in respect of rent-free accommodation should be taken as adopted by the Commissioner (Appeals) or at 60% of the relevant annual letting value or in the absence of such annual valuation adopt the same at Rs. 18,000 as per the earlier order of the Tribunal ?
2. Whether, on the facts and in the circumstances of the case, the perquisite value in respect of reimbursement of electricity charges is to be taken at 60 per cent of the same ?
3. Whether, on the facts and in the circumstances of the case, the perquisite value in respect of reimbursement of telephone bills is to be taken at 60% of the same ?
4. Whether, on the facts and in the circumstances of the case, the perquisite value in respect of the car should be taken at Rs. 12,000 for disallowance under section 40(c) ?
5. Whether, on the facts and in the circumstances of the case, the assessee is entitled to full standard deduction or not ?
6. Whether, on the facts and in the circumstances of the case, assessing a sum of Rs. 9,56,321 as income from other sources is justified or not ?”
Third Member Order
Sri G.E. Veerabhadrappa, A.M.
1. This appeal and cross-objection have come up before me for my opinion as Third Member under section 255(4) of the Income-tax Act, 1961 as there was a difference of opinion on the following points between the Members of the Tribunal who heard the matter :-
“1. Whether, on the facts and in the circumstances of the case, the perquisite value in respect of rent-free accommodation should be taken as adopted by the Commissioner (Appeals) or at 60% of the relevant annual letting value or in the absence of such annual valuation adopt the same at Rs. 18,000 as per the earlier order of the Tribunal ?
2. Whether, on the facts and in the circumstances of the case, the perquisite value in respect of reimbursement of electricity charges is to be taken at 60% of the same ?
3. Whether, on the facts and in the circumstances of the case, the perquisite value in respect of reimbursement of telephone bills is to be taken at 60% of the same ?
4. Whether, on the facts and in the circumstances of the case, the perquisite value in respect of the car should be taken at Rs. 12,000 for disallowance under section 40(c) ?
5. Whether, on the facts and in the circumstances of the case, the assessee is entitled to full standard deduction or not ?
6. Whether, on the facts and in the circumstances of the case, assessing a sum of Rs. 9,56,321 as income from other sources is justified or not ?”
2. The appeal and the cross-objection arise out of the order of the CIT(A) dated 22-11-1983 for the assessment year 1980-81.
3. The assessee is an individual deriving income from salary, property and ether sources. As could be seen from the questions posed before me, the first five questions relate to the computation of income under the head ‘Salary’ including the valuation of different perquisites provided to the assessee. One of the perquisites was a rent-free accommodation of a building known as, ‘Adyar House’, owned by M/s. South India Corporation Agencies (P.) Ltd. As no rent was paid in respect of the said accommodation, the assessee offered Rs. 7,500 per annum as the value of the perquisite. The Assessing Officer computed the value of the perquisite at Rs. 1,08,000. The assessee objected to the addition. A draft of the assessment order and the assessee’s objection were forwarded to the IAC, Central Range-II, Madras under the provisions of section 144B of the Income-tax Act, 1961. The IAC found that the facts of the case were similar to the assessment year 1979-80 and, therefore, directed the ITO to adopt the value of perquisite at Rs. 54,000 as was directed by him in the earlier year in the place of Rs. 1,08,000 fixed by the Assessing Officer. The assessee’s main argument before the CIT(Appeals) was that the value of the perquisite cannot exceed the annual letting value of the building. According to him, the Supreme Court in the case of Delhi Municipal Corporation v. Sheela Kaushik has held that the estimate of annual letting value cannot exceed the rental income which the owner can receive. The bungalow is located in a place where the Rent Control Act is in force. A portion of the building is used for official purposes. It belongs to the company and not to the individual. The CIT(A) proceeded to accept the assessee’s value of perquisite by observing as under :-
“13. I have carefully considered the arguments of the appellant. In view of the Board’s circular referred to above and the Supreme Court’s decision, the value of the perquisite has to be taken limiting it to the annual letting value as fixed by the Municipal authorities. It has also to be noted that though the appellant is staying in the building by virtue of his position as the Director, the building is owned by a company and the value of the perquisite will be equal to the rent which it can reasonably getting if let out to a third person. Especially since the building is also used for official purposes, the estimate made is excessive. The Income-tax Officer is directed to accept the value of perquisite as returned.”
4. The department came in appeal disputing the above direction of the CIT(Appeals). The learned Judicial Member after considering the orders of the Tribunal on the issue in the assessee’s own case for the assessment years 1978-79 and 1979-80 found that the order of the CIT(Appeals) is in consonance with the value fixed by the Madras Corporation and felt that there is no need to interfere. However, the learned Sr. Vice-President did not agree with the reasoning given by the learned Judicial Member and directed the Assessing Officer to adopt 60% of the relevant annual letting value or in the absence of such annual valuation adopt the perquisite at Rs. 18,000 as adopted by the Tribunal in the earlier assessment years.
5. The learned counsel for the assessee pointed out that he has no objection if the value of the rent-free accommodation is adopted at Rs. 18.000 as fixed by the order of the Tribunal for the assessment years 1978-79, 1979-80 and 1981-82. The order of the Division Bench for the assessment year 1981-82 in the assessee’s own case has been filed wherein on an identical issue, the Tribunal directed the Assessing Officer to fix the value at Rs. 18,000 in respect of the perquisite. In the light of this, I uphold the order of the learned Sr. Vice-President and direct the Assessing Officer to value the perquisite in question at Rs. 18,000 in line with the order of the Tribunal in this regard.
6. The next issue relates to the perquisite value of reimbursement of electricity charges and telephone charges. The total electricity charges in respect of the building ‘Adyar House’ was Rs. 20,050. The ITO brought to tax an amount of Rs. 12,030 on the reasoning that 60% of this is a perquisite in the hands of the assessee. Similarly, an amount of Rs. 9,450 was, accordingly, added as income in respect of the personal use of telephones. This is about 50% of the total expenses incurred. The learned Judicial Member has upheld the deletion on the ground that these expenses were incurred not solely for the assessee’s benefit but also for maintaining the company’s office. Support was drawn from the decisions of the Madras High Court in G. Venkataraman’s case (supra) and Manjushree Plantations Ltd.’s case (supra). However, the learned Sr. Vice-President has reversed the findings of the CIT(Appeals) on these issues. It was submitted by the learned counsel for the assessee that the property in question is owned by South India Corporation Agencies (P.) Ltd. and it has paid the maintenance expenses in the form of electricity charges. There is no perquisite or a personal benefit in the provision of these facilities. According to him, the decision of the Madras High Court, relied upon by the learned Judicial Member fully supports the case of the assessee. In fact, it was pointed out that the Division Bench in the assessment year 1981-82 has deleted such additions. The departmental representative, on the other hand, strongly relied upon the order of the Sr. Vice-President.
7. On careful consideration of the material on record, I find that there is no dispute that the building belongs to the company and it has maintained the building by payment of electricity charges and the building was also used for business purposes. In all such provisions, there is always some personal benefit to the assessee. The company has in fact obtained the services of the Director. I am, therefore, of the opinion that, following the principle laid down by the Madras High Court decision in the case cited by the learned Judicial Member, no addition should be made in respect of these perquisites.
8. As regards the telephone facilities also, the telephone is again installed in the business premises of the company for being used in its business. I, therefore, do not approve the addition of any perquisite value in the hands of the assessee.
8.1 The next issue relates to the perquisite on user of the car. The assessee has not admitted any perquisite value. According to him, the car was given only for business purposes and not for personal use. However, the Assessing Officer estimated such user for personal purposes at a sum of Rs. 12,000. The learned Judicial Member agreed with the findings of the CIT(A), following the decision of the Madras High Court in the case of G. Venkataraman (supra). However, according to the learned Sr. Vice-President, any unauthorised or illegal use of the car is also sufficient for valuation of perquisite and, therefore, he came to the view that the CIT(A) was not justified in cancelling the addition. The learned representative of the assessee argued that the car is provided only for official use by the Director and not for personal purposes and, therefore, the question of valuation of any perquisite will not arise. Reliance was again placed on the decision of the Madras High Court in the case of G. Venkataraman (supra). The departmental representative, on the other hand, strongly supported the addition.
9. On careful consideration and perusal of the material, I find that there is no material to indicate that the car in fact was so unauthorisedly used by the assessee during the relevant previous year. Therefore, in the absence of such material, it is difficult to hold that the motor car of the company was used by the assessee for personal use. The addition in my opinion is totally unjustified.
10. The next dispute relates to the assessee’s claim for standard deduction. In view of my finding as regards the addition in respect of perquisite of car, I am of the opinion that the assessee is entitled for full standard deduction.
11. The next issue relates to an addition of Rs. 95,632 made by the Assessing Officer relating to Sri I.K. Natarajan. In the question as well as in the order of the Sr. Vice-President, it is wrongly mentioned as Rs. 9,56,321. I have verified the records and find that the addition made by the Assessing Officer is only Rs. 95,632. The facts leading to this addition are that there was a search and seizure operation and papers were seized from one Sri I.K. Natarajan’s residence. Sri I.K. Natarajan was a General Manager of South India Sugars. A bunch of papers containing 84 pages was seized from his residence. Shri Natarajan was also examined. The Assessing Officer was of the view that Shri Natarajan was a business associate and transactions in the accounts maintained by Shri Natarajan an are the undisclosed business transactions of the assessee. The CIT(Appeals) deleted the addition. His discussions are as under :-
“8. I have carefully considered the arguments of the appellant and have also seen the relevant records. In the first place, it is not correct to make use of certain materials found in the residence of a third party for making an assessment in the hands of this appellant without establishing that the slips found are maintained for the appellant or that the accounts are maintained on the directions of the appellant. In other words, this is to represent the books of account of the appellant either maintained in his place of business, residence or that of an employee or in the business place of his associate in which case, the link has to be established to show that the papers found relate to and belong to the appellant. Prima facie, in the absence of any such link being established, this is an unilateral addition made on the basis of an uncorroborated statement and slips of papers taken from the residence of a third party. It is true that Shri I.K. Natarajan is an employee of Southern Tubes, a concern where Shri M.A. Chidambaram is a substantial shareholder. But then there are other substantial shareholders also. What is the evidence on the basis of which it has been concluded that this transaction represents the transaction done on behalf of Shri Chidambaram. Excepting the statement of Shri Natarajan there is nothing to show that these transactions relate to the appellant, even though Shri Natarajan happens to be his Private Secretary. The ratio of the decision in the case of Parimisetti Seetharamamma v. Commissioner of Income-tax (57 ITR 532) establishes that the link has to be proved before coming to the conclusion that what was seized from Shri Natarajan’s residence represents the appellant’s transactions. This vital link has not been established.”
12. The Hon’ble Judicial Member following the decision of the Supreme Court in the case of Kishinchand Chellaram (supra) came to the view that the department in the present case has not established that the money in question belonged to the assessee by bringing in proper evidence on record and in the absence of corroborative evidence of third party, no addition could be made.
13. On the other hand, the learned Sr. Vice-President upheld the addition made by the Assessing Officer. It was pointed out by the learned counsel for the assessee that the department has not discharged the onus cast on it and that there was no material or evidence to show that the assessee had actually earned the income. According to the learned counsel for the assessee, an addition cannot be made on the basis of uncorroborative evidence and slips of papers taken from the residence of a third party. The learned counsel pointed out that there is no material to indicate that what was seized from Shri Natarajan’s residence represents the assessee’s business transactions. The departmental representative, on the other hand, strongly supported the findings of the Assessing Officer.
14. In my view the addition is totally unjustified in the hands of the assessee. Shri I.K. Natarajan is General Manager of South India Sugars and is a third party and an addition cannot be made in respect of certain materials found in the residence of a third party. I am of the opinion that in the facts and circumstances of the case the department has not brought any material or established any link between the papers that were seized from Shri Natarajan and the business transactions of the assessee. I, therefore, subscribe to the reasoning given by the learned Judicial Member to delete the addition.
15. Now the matter will go before the Division Bench to decide the issue in accordance with the majority opinion.
N.D. Raghavan, Judicial Member
1. The appeal of the revenue and the cross-objection thereto of the assessee arise out of the order dated 22-11-1983 of the CIT(A) for the assessment year 1980-81.
2. While arriving at the decision after careful analysis of the respective submissions of both the learned representative for the revenue and the assessee, this Bench of the Tribunal consisting of Hon’ble Senior Vice-President Shri T.V.K. Natarajachandran and Hon’ble Judicial Member Shri P.I. Mohan Singh differed from each other in their conclusions.
3. In his detailed order dated 15-9-1995, the learned Judicial Member, for the various reasons discussed therein, ultimately dismissed the departmental appeal and allowed the cross-objection of the assessee for statistical purposes.
4. On the other hand, in his detailed order dated October 5, 1995, the learned Sr. Vice-President for the different reasons discussed therein could not agree with the conclusions, as aforesaid, of the Judicial Member, who partly allowed the departmental appeal while, however, allowing the cross-objection of the assessee for statistical purposes as the learned Judicial Member did insofar as the cross-objection is concerned.
5. In view of the difference of opinion between the two learned Members as aforesaid, the following questions were referred by them in their reference dated 6th October, 1995 made under section 255(4) of the Income-tax Act, 1961 to the Hon’ble President of the Tribunal for hearing by a Third Member :
“1. Whether, on the facts and in the circumstances of the case, the perquisite value in respect of rent-free accommodation should be taken as adopted by the Commissioner (Appeals) or at 60% of the relevant annual letting value or in the absence of such annual valuation adopt the same at Rs. 18,000 as per the earlier order of the Tribunal ?
2. Whether, on the facts and in the circumstances of the case, the perquisite value in respect of reimbursement of electricity charges is to be taken at 60% of the same ?
3. Whether, on the facts and in the circumstances of the case, the perquisite value in respect of reimbursement of telephone bills is to be taken at 60% of the same ?
4. Whether, on the facts and in the circumstances of the case, the perquisite value in respect of the car should be taken at Rs. 12,000 for disallowance under section 40(c) ?
5. Whether, on the facts and in the circumstances of the case, the assessee is entitled to full standard deduction or not ?
6. Whether, on the facts and in the circumstances of the case, assessing a sum of Rs. 9,56,321 as income from other sources is justified or not ?”
6. Thereafter, in accordance with the directions of the Hon’ble President, the matter was assigned to a Third Member and it was heard by the learned Accountant Member Shri G.E. Veerabhadrappa, as Third Member, and for the various reasons recorded by him in his order dated 21-2-1997 after careful analysis of all the points in issue in the light of the submissions made by both the parties, ultimately agreed on the issue in question as below :
Question No. 1 – This issue is dealt with in paragraphs 3 to 5 of his order, wherein the Third Member has ultimately agreed with the opinion of the learned Sr. Vice-President and directed the Assessing Officer to value the perquisite in question at Rs. 18,000 in line with the order of the Tribunal in this regard. Thus, the view expressed by the learned Judicial Member has been rejected by the learned Third Member.
Question No. 2 – This issue is dealt with in paragraphs 6 and 7 of the learned Third Member’s order. Ultimately, it was opined by him that following the principles laid down by the decision of the Hon’ble Madras High Court in the cases cited by the learned Judicial Member, no addition should made in respect of these perquisites. Thus, the opinion of the learned Sr. Vice-President was rejected by him in this regard.
Question No. 3 – This issue is dealt with by the learned Third Member in paragraph 8 of his order wherein he has disproved the addition of any perquisite value regarding telephone facility installed in the business premises of the company for being used in his business in the hands of the assessee-individual. Thus, the opinion of the learned Sr. Vice-President was rejected by him in this regard.
Question No. 4 – This issue is dealt with in paragraphs 8 and 9 of the order of the learned Third Member, wherein he has found that the addition made in this regard was totally unjustified in his opinion, there being no material to hold that the motor car of the company was used by the assessee for personal purpose. Thus, the opinion of the learned Sr. Vice-President was rejected by him.
Question No. 5 – This issue has been dealt with in paragraph 10 of the order of the learned Third Member wherein he opined that the assessee is entitled for full standard deduction in view of his finding as regards, the addition in respect of perquisite of car. Thus, the opinion of the learned Sr. Vice-President.
Question No. 6 – This issue has been dealt with at paragraphs 11 to 14 of his order wherein he has opined that on the facts and in the circumstances of the case the department had not brought any material or established any link between the papers that were seized from Shri Natarajan and business transactions of the assessee. Thus, he subscribed to the reasoning given by the learned Judicial Member to delete the addition, consequently rejecting the opinion of the learned Sr. Vice-President.
7. Consequent to the aforesaid order of the learned Third Member, this case was sent back to this Bench, which originally heard this appeal, for disposal in accordance with law. After hearing the parties and carefully going through the order of the learned Third Member, we pass this order in conformity with the majority decision holding in line and in tune with the opinion expressed on all the aforesaid questions referred to above that being the majority decision in agreement with the learned Judicial Member on question Nos. 2 to 6 and with the learned Sr. Vice-President on Question No. 1.
8. In the result, the appeal of the revenue is partly allowed and the cross-objection filed by the assessee is allowed for statistical purposes.
