Ajit K.Sengupta, J. - (1.) In this reference at the instance of the assessee, the following question has been referred by the Tribunal for the opinion of this court under Section 256(1) of the Income-tax Act, 1961 : "Whether the Tribunal was right in holding that a sum of Rs. 5,49,917 representing expenses incurred by some of the assessee-company's employees for use of their own motor car for the purpose of the assessee-company's business and reimbursed to them as such, was hit by Section 37(3A)/(3B) of the Income-tax Act, 1961 ?"
(2.) This reference relates to the income-tax assessment of the assessee-company for the previous year ending October 31, 1983, corresponding to the assessment year 1984-85. The assessee-company derives income from manufacture and sale of printing inks and synthetic resins. The assessee-company reimburses the expenses incurred by its employees for using their own motor cars for the purpose of the business carried on by the assessee-company. The aggregate reimbursement made during the relevant previous year on account of expenses incurred by the assessee-company's employees for use of their own motor cars was Rs. 5,49,917. The Income-tax Officer felt that this reimbursement was hit by the provisions of Section 37(3A)/(3B) of the Income-tax Act, 1961. This view was upheld both by the Commissioner of Income-tax (Appeals) as well as by the Tribunal.
(3.) Under Sub-section (3A) of Section 37, where the aggregate expenditure incurred by an assessee on any one or more of the items specified in Sub-section (3B) exceeds Rs. 1,00,000, 20 per cent, of such excess shall not be allowed as deduction in computing the business income. One of the items specified in Sub-section (3B) of Section 37 is "running and maintenance of aircraft and motor cars". Explanation (c)(ii) also provides that conveyance allowance paid to employees and, where the assessee is a company, conveyance allowance paid to its directors, would also be treated as expenditure on running and maintenance of aircraft and motor cars. In the case of the assessee-company, the motor cars are maintained by the employees. But when the motor cars are used by the employees for business purposes of the assessee-company, the employees concerned are paid by way of reimbursement the expenses for running and maintenance of such motor cars.;