Income-tax---

----Business expenditure---Expenditure incurred on travelling by employee-- Limits on expenditure---Disallowance limited to expenditure incurred for stay in hotels and confined to daily allowances---Disallowance does not extend to any other expenditure provided it is wholly laid out for purposes of business-- Indian Income Tax Act, 1961, S.37(3)---Indian Income Tax Act Rules, 1962, R.6-D.

Rule 6-D of the Indian Income Tax Rules, 1962, read with section 37(3) of the Income Tax Act, 1961, limits the expenditure incurred on travelling to the extent of stay in hotels confining it to daily allowances referred to in Rule 6-D and does not extend to any other expenditure incurred provided the expenditure is wholly and exclusively laid out for the purposes of business.

JUDGMENT

AJIT K. SENGUPTA, J.---This reference under section 256(1) of the Income Tax Act, 1961, relates to the assessment year 1980-81, on the interpretation of Rule 6-D(2)(b) of the Income Tax Rules, 1962.

The Income Tax Officer disallowed Rs.21,693 as against Rs.15,978 offered by the assessee on the ground that, under the Rule 6-D(2)(b), incidental conveyance expenses incurred (after reaching the destination), would be taken into consideration while making this disallowance. On appeal, the Commissioner of Income-tax (Appeals) deleted both the disallowances. On further appeal, the Tribunal held the deletion of the disallowance of Rs.5,985 on account of travelling expenses on the ground that Rule 6-D read with section 37(3) seeks to limit the expenditure incurred on travelling to the extent of stay in hotels confining it to daily allowance referred to in Rule 6-D and dc'' not extend to any other expenditure incurred provided that expenditure was for the purpose of business.

On these facts, the following question of law has been referred to this Court:

"Whether, on a correct interpretation of rule 6-D(2)(b) of the Income Tax Rules, 1962, the Tribunal was justified in restricting the disallowance under the said Rule to Rs.15,979 instead of Rs.21,963 as calculated by the Income Tax Officer?"

At the hearing, it has been contended by learned counsel appearing for the Revenue that the Income Tax Officer was justified in taking into account conveyance expenses , incurred while making the disallowance under Rule 6-D(2)(b) of the Rules. On the other hand, the contention of learned counsel of the assessee is that the actual expenses on conveyance incurred even after reaching the destination would not come within the purview of Rule 6-D(2)(b) which also comprehends travel by road at the place of visit as well.

We have considered the rival contentions. Rule 6-D is in two parts. Sub-rule (1) thereof deals with expenditure incurred by an assessee in connection with travelling by an employee or any other person outside India. We are not concerned with this here. Sub-rule (2), on the other hand, deals with such expenditure incurred within India. This is reproduced below:--

"6-D(2). The allowance in respect of expenditure incurred by an assessee in connection with travelling by an employee or any other person within India outside the headquarters of such employee or other person for the purposes of the business or profession of the assessee shall not exceed the aggregate of the amounts computed as hereunder:--

(a) in respect of travel by rail, road, waterway or air, the expenditure actually incurred;

(b) in respect of any other expenditure (including hotel expenses or allowances paid) in connection with such travel, an amount calculated at the following rates for the period spent outside such headquarters:

Provided that, if the stay of such employee or other person outside h i; headquarters is at Bombay, Calcutta or Delhi, the amount compute at the aforesaid rates shall be increased by a sum equal to fifty per cent of such amount:

Provided further that in a case where such employee or other person on any day of his stay outside his headquarters, stays free of charge in a guest house maintained by the assessee, the amount under mill clause shall be calculated at one-third of the aforesaid rates and where the employee or such other person is provided lodging only free of charge, at one-half of the aforesaid rates."

The question is whether the expression "including hotel expenses" in connection with travel is to be limited only to the daily allowances at stipulatcc9 in Rule 6-D or it should cover other expenses like conveyance or miscellaneous expenses in connection with such travel. If the expression "hotel expenses" is to include each and every expense incurred for subjecting it to the limitation provided in Rule 6-D, it would result in unintended hardship. Although we are concerned here only with the expenditure incurred in conveyance from the airport or railway station to the hotel, where the concerned employee and/or person has to stay in connection with the business of the assessee-company, no distinction can be made between the expenditure incurred in arriving at the hotel from the railway station or airport and the expenditure incurred in engaging a taxi in connection with the business of the assessee concerned after stay in the hotel. One does not stay in the hotel merely for the purpose of staying there but to conduct or transact business on behalf of the assessee in a place outside the headquarters. Not only has he to arrive from the airport or the railway station, as the case may be, at the hotel but after arriving at the hotel he may have to engage a taxi or to incur expenditure in connection with the business. If a person, instead of availing himself of an aero plane or train, engages a car to go out of the headquarters and stay in a hotel, his entire expenditure on travelling from the place of his departure to the hotel at the destination would normally be allowed as an expenditure. On a parity of reasoning, any expenditure for engaging a taxi or a conveyance from the airport or the railway station, as the case may be, to the hotel has to be excluded from the purview of Rule 6-D. It is true that the object of enactment of section 37(3) and Rule 6-D is to curtail or reject claims for deduction of unduly large expenditure on daily allowances or unnecessary bookings in planes and trains and in many other ways but one has to look at the nature of the expenditure incurred by the employee or person in connection with the business. The expenditure on conveyance to and from the airport and railway station or miscellaneous expenses in connection with travel are incurred wholly in connection with the business and fall outside the scope of Rule 6-D and these types of expenditure are not intended to be curtailed. The object of introducing a restriction on the allowance of travelling expenditure was to curb lavish expenditure being incurred on travelling. It cannot be said in the light of the facts of this case that the expenditure made on conveyance can be said to be lavish or unnecessary which must be excluded from the purview of Rule 6-D. It is now well-settled that, if a provision of a taxing statute can be reasonably interpreted in two ways, that interpretation which is favourable to the assessee has to be accepted. In our view, even assuming that there is any ambiguity in the provision, it has to be resolved in favour of the subject. So long as the person does not arrive at the place where he will be staying on being away from the headquarters, he must be deemed to be in the process of travelling. It is only when he arrives at the hotel, it can be said that he has arrived at his destination and accordingly, the expenditure on conveyance from the airport or railway terminus cannot be brought within the purview of Rule 6-D.

The Revenue has misconstrued the rules. The expenditure for travel is governed by clause (a) and not clause (b) of sub-rule (2) of Rule 6-D. Clause (b) deals with expenditure other than for travelling.

Under clause (a), it is the actual expenditure, which is admissible, be it by rail, road, air or waterways. But the cost of the entire journey from the start to the place where the traveller is to put up would also form part of his travel referred to in clause (a). Clause (a) does not predicate that the travel cannot be composite travel by railways, roadways, waterways and airways. Every travel in one sense is of mixed nature; where a person boards a plane or a train or a ship, steamer, etc., he only completes a part of the journey, the other part of the travel still remains from the port or station to the place of final destination, i.e. the hotel or boarding house or guest house, as the case may be. That part of travel by road is included in clause (a). Thus, even the strictest literal construction also admits of the allowance of the actual expenditure which a person incurs until he reaches the final destination. Therefore, the cost of road transport or other modes of transport from the airport or rail station to the hotel and back on the return journey is admissible and is not subject to the n of tire monetary limit prescribed in clause (b) of sub-rule (2). This position would also apply where the person incurs cost of his movements within the place where he stays. That can also be construed as actual expenditure incurred for the travel governed by clause (a) and not clause (b) of the sub-rule.

There is another aspect of the matter. It is not disputed before us nor could it be disputed that the expenditure claimed by the assessee is reasonable, as the section and the rule lay down the limits of expenditure beyond which deduction is impermissible. Even if equitable considerations may not be relevant in interpreting the provisions of a taxing statute, on the facts of this case, it must be held that the expression including hotel expenses or allowances paid in connection with travelling must mean only the allowances paid for the stay in hotel. The restriction thus confines itself only to the expenses on stay and does not cover other expenses incurred provided they are not personal and are exclusively for the purpose of the business. It is not necessary for us to illustrate the types of expenditure but suffice it to say that Rule 6-D read with section 37(3) seeks to limit the expenditure incurred on travelling to the extent of stay in hotels confining it to daily allowances referred to in Rule 6-D and do not extend to any other expenditure incurred provided the expenditure is wholly and exclusively laid out for the purpose of business.

For the reasons aforesaid, we answer the question in this reference in the affirmative, in favour of the assessee and against the Revenue.

There will be no order as to costs,

BHAGABATI PRASAD BANERJEE, J: -- I agree,

M.B.A./210/T.F.Reference answered.