(a) Income-tax---

----Business expenditure---Gifts presented to foreign suppliers and collaborators while on visit to assessee's place ' of business---Expenditure incurred wholly and exclusively for business---Not in the nature of expenditure on publicity or advertisement---Allowable as deduction---Indian Income Tax Act, 1961, S.37(1).

(b) Income-tax---

----Reference---Answer to question self-evident---Reference need not be called for---Indian Income Tax Act, 1961, S.256(2).

(c) Income-tax---

----Business expenditure--- Depreciation--- Additional depreciation-- Investment allowance ---Claim to deduction of foreign tour expenses as business expenditure disallowed---On appeal, expenses apportioned as revenue expenditure on existing business and capital expenditure on new business---Appeal to Tribunal claiming depreciation, additional depreciation and investment allowance on capital expenditure as apportioned---Tribunal directing Assessing Officer to consider claim---Justified.

The assessee was a manufacturer of carburettors, spokes, nipples, clutches, etc., in technical collaboration with foreign parties. It claimed deduction of expenditure on gifts worth Rs.58,405 to foreign collaborators and Rs.14,930 to others, made in order to maintain good business relations with the foreign suppliers and collaborators. The Tribunal held that the gifts had been given not by way of any advertisement or publicity, but with a view to developing a smooth working relationship with the foreign collaborators. Expenditure of Rs.58,405 incurred on the purchase of gift items was allowed The Tirbunal, however, directed the Assessing Officer to look into the expenditure of Rs.14,930 and then to allow deduction up to Rs.50 on each item of gift in accordance with Rule, 6-B of the Income-tax Rules, 1962. On an application by the Department to direct a reference:

Held, dismissing the application, (i) that the question ` about allow ability of the expenditure incurred on the purchase of gift items was a question based on material facts. If the answer to the question was self evident, there was no need to call for a reference. The expenditure on gifts could be allowed, because the gift items were not items of advertisement or publicity. The silver trays, purchased by the assessee as gift items, did not, in any way, represent items of advertisement or publicity of goods manufactured by the assessee. Obviously, the gifts had been given to the foreign suppliers and collaborators on their visits to the assessee's place of business for the purpose of developing a smooth working relationship. There was nothing on record to indicate that the items had been given as gifts for any reason, which could be treated to be personal. Therefore, the finding of fact given by the Tribunal did not give rise to any question of law.

(ii) That as regards the expenditure of Rs.14,930, the Assessing Officer had to look into this expenditure so as to verify that the expenditure on each item could be allowed up to Rs.50 in terms of Rule 6-B of the Rules.

The assessee-company incurred expenditure when officials of the assessee -company had gone to Japan in connection with planning new items in collaboration with a Japanese company. The officials had to collect certain information about the plant and machinery to be imported from Japan. They had to finalize certain details for the import of drawings and designs also. The Assessing Officer disallowed this expenditure, treating it as capital expenditure. The Commissioner, in appeal, took the view that 40 per cent. of the foreign tour expenditure pertained to the existing business of the assessee and 60 per cent. of the expenditure had been incurred in connection with the expansion plan of the business or the new business. Disallowance was, therefore, reduced from Rs.1,69,221 to Rs.1,01,533. The assessee appealed to the Tribunal claiming depreciation, additional depreciation and investment allowance on the expenditure which was treated to be capital expenditure. The Tribunal directed the Assessing Officer to consider the assessee's claim. On an application by the Department to direct a reference:

Held, on the facts that no question of law arose.

Bengal Enamel Works Ltd. v. CIT (1970) 77 ITR 119 (SC); CGT v. Sint. Kusumben D. Mahadevia (1980) 122 ITR 38 (SC); CIT v. Greaves Cotton & Co. Ltd. (1968) 68 ITR 200(SC); CIT v. Managing Trustee, Jalakhabai Trust (1967) 66 ITR 619 (SC) and CIT v. S.L.M. Maneklal Industries Ltd (1977) 107 ITR 133 (Guj.) ref.

R.P. Sawhney and Mahavir Ahlawat for Petitioner.

G.S. Sandhawalia for Respondent.

JUDGMENT

N.K. AGRAWAL, J.---This is an application under section 256(2) of the Income-tax Act, 1961 (for short, "the Act"), by the Commissioner of Income-tax seeking a direction to the Income-tax Appellate Tribunal (for short, "the Tribunal") to refer the following questions of law to this High Court for opinion:

"(1) Whether, on the facts and in the circumstances of the case the learned Tribunal was right in law in deleting the addition of Rs.58,405 made on account of gifts and presents made to foreign collaborators by relying on the decision of the Gujarat High Court in the case of CIT v. S.L.M. Maneklal Industries Ltd. (1977) 107 ITR 133?

(2) Whether, on the facts and in the circumstances of the case, the learned Tribunal was right in law in directing the Assessing Officer to reduce from the value of presented articles a sum of Rs.50 from the value of each item by overlooking the provisions of Rule.6-B.?

(3) Whether, on the facts and in the circumstances of the case, the learned Tribunal was right in law in directing the Assessing Officer to allow depreciation, additional depreciation and investment allowance on the expenditure incurred on foreign tour of its employees as the expenditure true was treated to be of capital nature by ignoring the facts that no tangible asset has come into existence?"

The assessee-company filed return of income for the assessment year 1982-83 (year ending December 31, 1981) showing the income at Rs.11,42,720. The assessee had shown expenditures on certain gifts at Rs.73,336. It included purchase of 12 silver trays for Rs.35,178, to be given as gifts to the members of a Japanese delegation and purchase of two other silver trays for Rs.6,730 to be gifted to the foreign collaborators. The Assessing Officer, after examining various items of expenditures, allowed expenditure of Rs.1,405 only and disallowed the balance amount of Rs.71,932, after taking the view that the expenditure incurred on gifts was not wholly and exclusively for the purposes of the assessee's business and, therefore, section 37(1) of the Act was not attracted. The Assessing Officer further noticed that expenditure on each article of gift was in excess of Rs.50 and, therefore, the excess expenditure could not be allowed in the light of Rule 6-B of the Income-tax Rules, 1962 (for short, "the Rules"). The assessee went in appeal and the disallowance was reduced by the Commissioner of Income-tax from Rs.71,932 to Rs.69,000 considering the assessee's plea that the cost on certain items of gift was below Rs.50 each. No relief was, however, given regarding the gifts made to the delegates and the collaborators.

The assessee went in further appeal before the Tribunal and explained that gifts costing Rs.58,405 were given to the foreign collaborators and items costing Rs.14,930 to other so as to maintain good business relations with the foreign suppliers and collaborators. The assessee was a manufacturer of carburettors, spokes, nipples, clutches, etc., in technical collaboration with foreign parties. Expenditure incurred on gifts was, therefore, claimed to be an expenditure allowable under section 37(1) of the Act as it was incurred wholly and exclusively for the purposes of the business. The Tribunal agreed with the assessee and took view that the gifts had been given not by way of any advertisement or publicity but with a view to developing a smooth working relationship with the foreign collaborators. The Tribunal placed reliance on a decision of the Gujarat High Court in CIT v. S.L.M. Maneklal Industries Ltd. (1977) 107 ITR 133. Expenditure of Rs.58,405 incurred on the purchase of gift items was allowed. The Tribunal, however, directed the Assessing Officer to look into the expenditure of Rs.14,930 and then to allow deduction up to Rs.50 on each item of gift as per Rule, 6-B of the Rules.

Shri R.P. Sawhney, senior learned counsel for the Department, has argued that the two questions, which are sought to be referred to this High Court, are questions of law inasmuch as the nature of the expenditure has to be examined in the light of the requirement of the business and in terms of the agreement between the assessee and the foreign suppliers and collaborators. It is argued by Shri Sawhney that the gifts had not been given for business purposes inasmuch as there was no requirement in the agreement to give such gifts in terms of the technical contract. Payments to the foreign suppliers and collaborators could be made in terms of the contract only and not otherwise. Reliance has been placed by Shri Sawhney on a decision pf the Supreme Court in CIT v. Managing Trustee, Jalakhabai Trust (1967) 66 ITR 619, in support of the proposition that the High Court has only to consider whether a question of law arises out of the order of the Tribunal and is not called upon to decide whether the question, sought to be made, may ultimately be decided in favour of the assessee.

In CIT v. Greaves Cotton & Co. Ltd. (1968) 68 ITR 200, the Supreme Court was again examining a question about the scope and power of the High Court, in a matter of tax reference and it was observed that the question, whether an expenditure was laid out wholly and exclusively for the purposes of business, was a mixed question of law and fact.

In Bengal Enamel Works Ltd. v. CIT (1970) 77 ITR 199, the Supreme Court was examining a matter relating to certain remuneration given to the employees. The Assessing Officer had disallowed part of the remuneration on the ground that it was paid on extra-commercial considerations. It was observed that the taxing authority may disallow an expenditure which is claimed on the ground that the payment is not real or is not incurred by the assessee in the course of his business or that it is not laid out wholly and exclusively for the purpose of the business of the assessee.

The question about allow ability of the expenditure incurred on the purchase of gift items is a question based on material fact. If the answer to the question is self-evident, there is no need to call for a reference. In C.G.T. v. Smt. Kusumben D. Mahadevia (1980) 122 ITR 38, it has been observed by the Supreme Court as under (headnote):

"It is true that there must be a question of law arising out of the order of the Tribunal before a reference can be made, but it is not every question of law that is required to be referred by the Tribunal to the High Court. Where the answer to the question is self-evident or is concluded by a decision of the Supreme Court, it would be futile to make a reference and in such a case the Tribunal would be justified in refusing to refer the question to the High Court."

Expenditure on gifts may be allowed, because the gift items were not items of advertisement or publicity. The silver trays, purchased by the assessee as gift items, did not, in any way, represent items of advertisement or publicity of goods manufactured by the assessee. Obviously, the gifts had been given to the foreign suppliers and collaborators on their visits to the assessee's place of business for the purpose of developing a smooth working relationship. There is nothing on record to indicate that the items had been given as gifts for any reason, which could be treated to be personal. There is no denying the fact that the suppliers and collaborators had visited the place of business of the assessee and the assessee had business interest in them. Therefore, the finding of fact given by the Tribunal does not give rise to any question of law. Expenditure on the gift items has been rightly allowed, treating it to be an expenditure wholly, and exclusively for the purposes of business under section 37(1) of the Act. As regards the expenditure of Rs.14,930, the Assessing Officer has to look into this expenditure so as to verify that the expenditure on each item could be allowed up to Rs.50 in terms of Rules 6-B of the Rules. Questions Nos. l and 2 are, therefore, declined.

Question No.3 relates to the disallowance of Rs.1,69,221 on account of foreign tour expenditure. The officials of the assessee-company had gone to Japan in connection with the planning and business for the manufacture of certain new items in collaboration with a Japanese company. The officials had to collect certain information about the plant and machinery to be imported from Japan. They had to finalize certain details for the import of drawings and designs also. The Assessing Officer disallowed this expenditure, treating it as capital expenditure. The Commissioner, in appeal, took the view that 40 per cent. of the foreign tour expenditure pertained to the existing business of the assessee and 60 per cent. of the expenditure had been incurred in connection with the expansion plan of the business or the new business. Disallowance was, therefore, reduced from Rs.1,69,221 to Rs.1,01,533. The assessee went in further appeal before the Tribunal claiming depreciation, additional depreciation and investment allowance on the expenditure which was treated to be capital expenditure. The Tribunal directed the Assessing Officer to consider the assessee's claim. On these facts, no question of law arises for two reasons; one,, that the matter has been sent back by the Tribunal to the Assessing Officer for considering the assessee's claim regarding depreciation etc., on the capital expenditure and, secondly, any expenditure, which is treated to be capital expenditure, shall become part of the cost of plant and machinery, and depreciation, etc., has to be allowed on plant and machinery in accordance with law. Question No.3 also does not arise from the Tribunal's order.

In the result, the application is rejected.

M.B.A./1382/FC Application rejected.