COMMISSIONER OF INCOME TAX Vs. NARAYANAN NAIR C

JUDGEMENT

(1.) THE main question in this income tax referred case is whether the unauthorised advantage taken by the employee without the authority of the employer in the form of using the motor car given exclusively for the business of the employer for his private purposes also could be considered as a perquisite in the hands of them employee. The case relates to the asst. year 1978 79. The assessee was the manger of S. Koder and was drawing a salary exceeding Rs. 18,000. During the relevant accounting period, the employer had provided a motor car for use by the assessee in connection with the business of the employer. The assessee produced a certificate from the employer to the effect that the cars and vans belonging to the employer firm were used during the accounting period only for the purpose of the business of the firm and that the manager and other employees of the firm were not permitted to use the same for their personal purposes. The ITO found that the assessee had been using the car for participating in public functions, marriage parties and for visiting clubs. Since he found that the assessee was using the car for personal purposes also, he restricted the standard deduction under S. 16(1) of the IT Act, 1961, to Rs. 1,000. Under r. 3(c)(ii) of the IT Rules, 1962, the ITO worked out the perquisite value of the use of the car at Rs. 3,600 and made an addition of the same to the income of the assessee. The AAC confirmed the assessment. On second appeal before the Tribunal, the Tribunal deleted the addition holding that the said addition as perquisite value of the conveyance is not sustainable. The Tribunal also held that the standard deduction admissible under S. 16(1) cannot be restricted. Thereafter, at the instance of the Revenue, the following questions of law have been referred to this Court under s. 256(1) :

(2.) WE heard counsel for the Revenue and also counsel for the respondent.

(3.) THE above section says that the standard deduction will have to be allowed but if the assessee's case is covered under the proviso, the standard deduction shall not exceed one thousand rupees. Under the proviso, either the assessee must be a in receipt of a conveyance allowance or the assessee must have been provided by his employer with a motor car for use by the assessee, otherwise than wholly and exclusively in the performance of his duties or a motor car should have been hired or owned by the employer of the assessee and the assessee allowed the use of such motor car, otherwise than wholly and exclusively in the performance of his duties. In the case in question, the assessee has not been given a motor car otherwise than wholly and exclusively in the performance of his duties. The certificate clearly says that the motor car is used wholly and exclusively for the purpose of the business of the firm. No collusion between the assessee and the employer is also found. Therefore, there is no justification for limiting the standard deduction to rupees one thousand. The next S. 17 which is relied upon by the Revenue. For the purpose of charging "salary" under S. 17(2), "perquisite" also will have to be included and it is the contention of the Revenue that the provisions of a motor car will be a perquisite chargeable under S. 17(2)(iii)(c). For the purposes of Ss. 15, 16 and 17, the term "perquisite" will include the value of any benefit or amenity granted or provided free of cost or at a concessional rate by an employer to an employee whose income under the head "Salaries", exclusive of the value of all benefits or amenities not provided for by way of monetary payment exceeds eighteen thousand rupees. How the quantum of this perquisite has to be worked out is mentioned in r. 3(c)(ii) of the IT Rules, 1962. The value of the benefit of perquisite will be assessable as "income" within the meaning of S. 2(24)(iv). But, in order to be taxable as income, the benefit should have been authorised by the employer. The value of any unauthorised benefit in respect of which the employee would be liable to make restitution to the employer cannot be a perquisite within the meaning of S. 17(2)(iii)(c). In short, in order to bring a benefit or advantage within the provisions of S. 17(2)(iii), it must have a legal origin. Any unauthorised advantage taken by the employee without the authority of the employer would only create a legal obligation to restore such advantage, and, therefore, such an unauthorised advantage will not amount to a benefit or advantage within the meaning of S. 17(2)(iii). In the decision reported as CIT vs. C. Kulandaivelu Konar (1975) 100 ITR 629, (Mad), the law is stated as follows :