The central legal point established in the judgment is the interpretation of the Income Tax Act provisions and their application to the specific case, influencing the court's decision.

S.J. Vazifdar, J.

1. This is a Reference under section 256(1) of the Income Tax Act, 1961, arising from the order of the Income Tax Appellate Tribunal in ITA No.5873/Bom/86 and ITA 6060/Bom/86, relating to the assessment year 1983-84. The applicant-assessee and the respondent-Department filed two separate reference applications each. The Tribunal drew up a statement of case seeking the opinion of this Court on the following questions which were at the assessee's request:

“(i) Whether on the facts and circumstances of the case, the Tribunal was right in holding that the expenses incurred by the employee after reaching the place of destination including stay expenses was to be treated as disallowance u/s 39 read with Rule 60?

(ii) Whether on the facts and in the circumstances of the case, the Tribunal was right in holding that reimbursement of medical expenses form part of salary / remuneration for computing disallowance u/s. 40(c)?

(iii) Whether on the facts and in the circumstances of the case, the Tribunal was right in holding that for quantifying disallowance u/s 40(c) expenditure incurred by the company towards the personal use of motor cars provided to the Directors was to be considered and not the perquisite value as per rule 3 of the Income Tax Rules?

(iv) Whether on the facts and in the circumstances of the case, the Tribunal was right in holding that the the rent of Rs.16,91,250/-was to be treated as capital expenditure and that the assessee acquired a capital asset thereby disallowing the entire amount claimed to be revenue expenditure?

(v) Whether on the facts and in the circumstances of the case, the Tribunal was right in holding that the depreciation allowable u/s. 32 of the Act, should not be at the rates prescribed by the income-tax Rules, as amended with effect from 2.4.1983?

(vi) Whether on the facts and in the circumstances of the case, the Tribunal was right in holding that the depreciation was not allowable in respect of payment of Rs.16,91,250/-which was treated as capital expenditure for acquiring a capital asset?”

The Tribunal also sought the opinion of this Court on the following question at the request of the Department:

“Whether on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the disallowance under rule 6-D should be worked out on each employee basis rather than on trip basis?”

2. It is agreed between the parties that Question Nos.(i) and (ii) are liable to be answered in the negative and in favour of the assessee in view of the judgment of this Court in Commissioner of Income Tax v. Gannon Dunkerly & Co. (1993) 114 CTR (Bom) 56 and CeatTyres of India Ltd. v. Commissioner of Income Tax (1994) 121 CRT (Bom) 80, respectively and that Question No.(iii) is liable to be answered in the affirmative in favour of the respondent in view of the judgment of this Court in Commissioner of Income Tax v. British Bank of Middle East (2001) 251 ITR 217. It is also agreed that Question No.(vii), which was referred on the Department's request, is liable to be answered in the negative in favour of the respondent in view of the judgment of this Court in Commissioner of Income Tax v. Aorow India Ltd. (1998) 229 ITR 325. The Reference in respect of Question Nos.(i), (ii), (iii) and (vii) is answered accordingly.

3. As Question No.(vi) is in the alternative to Question No.(iv), we will first deal with Question No.(v).

Re: Question No.(v):

4. The assessee filed a return of income on 26th June, 1983, declaring a total income of Rs.2,91,84,530/-. An assessment order was passed under section 143(3). The assessee had, inter-alia, claimed depreciation at a higher rate on the ground that the taxation laws amendment rule applicable from 2nd April, 1983, was applicable to all pending assessments, irrespective of the assessment year. The Assessing Officer held that the CBDT had clarified in a letter dated 13th June, 1983, that it was well settled that in taxing matters, the subs