COMMISSIONER OF INCOM&TAX VS BHARAT INDUSTRIAL WORKS
1999 P T D 2107
[226 I T R 543]
[Madhya Pradesh High Court (India)]
Before A. K. Mathur, C. J. and S. K. Kulshrestha, J
COMMISSIONER OF INCOM&TAX
Versus
BHARAT INDUSTRIAL WORKS
Miscellaneous Civil Case No.249 of 1993, decided on 07/05/1996.
Income-tax---
Business expenditure---Disallowance---Expenditure on running and maintenance of cars---20% of excess over rupees one lakh is disallowable-- Indian Income Tax Act, 1961, S.37(3-A) & (3-B).
Section 37 of the Income Tax Act, 1961, provides that any expenditure not described in sections 30 to 36 and not being .capital expenditure or personal expenses, expended for the purposes of the business shall be allowed. Section 37(3-A) made a further exception by applying a non obstante clause. Therefore, if the expenditure on one or more items in section 37(3-B) of the Act exceeds rupees one lakh, 20 per cent. of such excess will not be allowed.
The assessee claimed deduction of expenses of Rs.1,41,580 on maintenance of motor cars. The Assessing Officer disallowed part of the expenses under section 37(3-A) read with section 37(3-B)(ii). The Tribunal allowed the claim of the assessee. On a reference:
Held, that in section 37(3-B)(ii) of the Act running and maintenance of aircraft and motor cars are mentioned. That shows that expenditure to the extent of rupees one lakh on the maintenance of car will be allowed and over and above that, 20 per cent. of the excess is not allowable. Therefore, the Tribunal was not justified in holding that for the purpose of working out the disallowance under section 37(3-A), the expenditure incurred on maintenance of cars was not includible.
A. Sapra for the Commissioner
B.L. Nema for the Assessee.
JUDGMENT
This is a reference at the instance of the Revenue under section 256(1) of the Income Tax Act, 1961. The following question of law has been referred by the Tribunal for answer by this Court:
"Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in holding that for the purpose of working the disallowances under section 37(3-A), the expenditure incurred on rnaintenance of car was not includible in spite of clear and specific provisions in section 37(3,B)(ii) of the Income Tax Act, 1961?"
The brief facts giving rise to this reference are that the assessee-firm declared its total income at Rs.4,18,030. The business of the assessee was manufacture and sale of spare parts required in steel plants and other industries and also execution of the work of fabrication of steel structures and power equipments. During the course of assessment, the Assessing Officer found that an amount of Rs.1,41,580 was incurred by the assessee on maintenance of cars. He included this amount while computing the disallowable expenses under section 37(3-A) since, according to the provisions of section 37(3-B)(ii), expenses on running and maintenance of motor cars had to be included.
Aggrieved by the order of the Assessing Officer, the assessee preferred an appeal before the Commissioner of Income-tax (Appeals). The Commissioner of Income-tax (Appeals) by order, dated October 15, 1987, had directed the Assessing Officer to exclude this amount for the purpose of computing the disallowable expenditure under section 7(3-A), since, according to him, the assessee relied on the decision of the Income-tax Appellate Tribunal, Bombay Bench, in the case of B.A. Brothers Bombay Pvt. Ltd. v. 8th ITO, in I.T.A. No. 1027 (Bombay) of 1985. On appeal by the Revenue, the Income-tax Appellate Tribunal dismissed the appeal. Then the Revenue approached the Tribunal for making a reference to the Hon'ble High Court and the Tribunal has referred the aforesaid question of law for answer by this Court. .
We have gone through the order of the Tribunal. The order of the Tribunal is a non-speaking order because it has made reference to the order of the Tribunal, Bombay Bench, without giving detailed facts and the ratio laid down by the Tribunal. It has just mentioned that in view of the order of the Tribunal, Bombay Bench, the appeal of the Department is dismissed.
Sections 37(3-A) and 37(3-B) as they stood at the relevant time are reproduced as under:
"Section 37 (3-A) Notwithstanding anything contained in subsec tion (1), but without prejudice to the provisions of subsection (2-B) or subsection (3), where the aggregate expenditure incurred by an assessee on advertisement, publicity and sales promotion in India exceeds forty thousand rupees, so much of such aggregate expenditure as is equal to an amount calculated as provided hereunder shall not be allowed as a deduction, namely:---
| (i) where such aggregate does not exceed 1/4expenditure; per cent. of the turnover or, as the case may be, gross receipts of the business or profession. | 10 per cent. of the adjusted expenditure |
| (ii) where suchaggregate exceeds 1 /4 per cent expenditure; but does not exceed 1 /2 per cent of the turnover or, as the case may be, gross receipts of the business or profession. | 12 1/2 per cent. of the adjusted expenditure |
| (iii) where such aggregate expenditure exceeds 1 /2 per cent of the turnover or, as the case may be, gross receipts of the business or profession. | 15 per cent of the adjustedexpenditure |
Explanation -For the purposes of this subsection
(a) "Adjusted expenditure" means the aggregate expenditure incurred by the assessee on advertisement, publicity and sales promotion in India as reduced by so much of such expenditure as is not allowed under subsection (1) and as further reduced by so much of such expenditure as is not allowed under subsection (2-B), or sub section (3)
(b) "turnover" and "gross receipts" means turnover or gross receipts, as the case may be, as reduced by any discount or rebate, allowed by the assessee.
(3-B)Nothing contained in subsection (3-A)'shall apply in relation to any expenditure incurred by an assessee on---
(i) advertisement in any small newspaper
(ii) advertisement in any newspaper for recruitment of personnel;
(iii) the publication in any newspaper of any notice required to be published by or under any law;
(iv) the maintenance of any office for the purposes of advertisement publicity or sales promotion;
(v) the payment of salary as defined in clause (1) of section 17 to any employee engaged in advertisement, publicity or sales promotion;
(vi) the holding of, or the participation in, any press conference, sales conference, trade convention, trade fair or exhibition;
(vii) publication and distribution of journals, catalogues or price lists,
(viii) such other items as may be prescribed
Explanation 1. ---For the purposes of clause (i), an advertisement in a newspaper shall be deemed to be an advertisement in a small newspaper, if the average circulation of such newspaper in the year in which such advertisement has been published, does not exceed fifteen thousand copies.
Explanation 2.---"Average circulation", in relation to any newspaper, shall be taken to be the number arrived at by dividing the aggregate of the number of copies of such newspaper circulated during a year by the total number of days on which such newspaper was published in that year."
Section 37 of the Act provides that any expenditure not being expenditure of the nature described in sections 30 to 36 and not being in the nature of capital expenditure or personal expenses of the assessee, laid out or expended wholly and exclusively for the purposes of the business or profession shall be allowed in computing the income chargeable under the head "Profits and gains of business or profession." Section 37(3-A), as it stood, has made a further exception by applying a non obstante clause. That shows that if the expenditure which is incurred by the assessee on one or more items specified in subsection (3-B) of section 37 of the Act exceeds rupees one lakh, 20 per cent. of such excess shall not be allowed as a deduction in computing the income chargeable under the head "Profits and gains of business or profession". Section 37(3-B)(ii) of the Act talks about running and maintenance of aircraft and motor cars. That shows that the expenditure to the extent of rupees one lakh on the maintenance of car will be allowed and over and above that 20 per cent. of the excess shall not be allowed as deduction in computing the income chargeable under the head "Profits and gains of business or profession". Therefore, the view taken by the Tribunal does not appear to be well founded in the present context. Though the Tribunal has not made any detailed discussion, it has simply referred to the decision of the Bombay Bench of the Tribunal and then upheld the order of the Commissioner of Income-tax (Appeals) which does not appear to be well justified. Hence, we are of the opinion that the view taken by the Tribunal and the Commissioner of Income-tax (Appeals) is not correct and we answer the question in favour of the Revenue and against the assessee.
M.B.A./1961/FC Reference answered