COMMISSIONER OF INCOME TAX vs. MEHTA PARIKH AND CO PVT LTD

ITR/305/1987HC GujaratGJHC24012035198730 January 2003Author: HONOURABLE MR. JUSTICE R.K.ABICHANDANI,HONOURABLE MR. JUSTICE A.L.DAVE3 pages
AI SummaryRemanded

What were the facts?

The Income Tax Appellate Tribunal, Ahmedabad Bench, referred two questions to the Gujarat High Court concerning assessment year 1980-81. The assessee, Mehta Parikh and Co Pvt Ltd, a trading company, claimed weighted deduction under Section 35B for rent (Rs. 2,434) and bank interest on export packing credit (Rs. 20,640). The Income Tax Officer allowed partial rent deduction, the CIT(A) allowed it fully. The Tribunal restricted the rent deduction to half. The CIT(A) allowed the interest deduction, which the Tribunal confirmed. The second question concerned disallowance under Section 40(c) for payments to directors (Rs. 5,400 bonus, Rs. 10,500 leave encashment/travel concession). The High Court was asked to decide if these payments should be excluded for determining disallowance.

What did the High Court hold?

The High Court answered both questions in the negative, in favour of the revenue. For the first question, the Court held that for weighted deduction under Section 35B, the expenditure must fall within the specified sub-clauses of Section 35B(1)(b). Relying on its own decisions in C.I.T. v. Jay Industries and Testeels Ltd. v. C.I.T., and the Supreme Court's decision in C.I.T. v. Stepwell Industries Ltd., the Court found that the rent and interest payments did not qualify. The burden was on the assessee to prove the expenditure fell under the specified categories, which it failed to do. For the second question, the Court followed its decision in Ambica Mills Ltd. v. C.I.T., holding that any expenditure incurred by a company for its Managing Director or other directors by way of remuneration, benefit, or amenity is covered under Section 40(c). Therefore, these payments were not to be excluded for determining disallowance. The reference was disposed of accordingly.

What were the issues?

1. Whether, in law and on facts, the assessee is entitled to a weighted deduction under section 35-B of the Income-tax Act, 1961, in respect of Rs. 2,434/- being rent payment and Rs. 20,640/- being interest paid to the bank on export packing credit? The revenue contended that these expenditures do not fall under any of the clauses of Section 35B(1)(b) and therefore, no weighted deduction is admissible. The assessee argued for entitlement to the deduction. 2. Whether, in law and on facts, payments to the Directors, of Rs. 5,400/- being bonus and Rs. 10,500/- being leave encashment and leave travel concession, are required to be excluded for determining disallowance under section 40(c) of the Income-tax Act, 1961? The revenue argued that such payments are covered under Section 40(c). The assessee contended for their exclusion.

Which sections of the Income-tax Act were involved?

Section 35B,Section 40(c),Section 256(1)

AI-generated summary — verify with the full judgment below

IN THE HIGH COURT OF GUJARAT AT AHMEDABAD

INCOME TAX REFERENCE No 305 of 1987

For Approval and Signature:

Hon'ble MR.JUSTICE R.K.ABICHANDANI and Hon'ble MR.JUSTICE A.L.DAVE

============================================================ 1. Whether Reporters of Local Papers may be allowed : YES to see the judgements?

2.

To be referred to the Reporter or not? : NO 3. Whether Their Lordships wish to see the fair copy : NO of the judgement?

4.

Whether this case involves a substantial question : NO of law as to the interpretation of the Constitution of India, 1950 of any Order made thereunder?

5.

Whether it is to be circulated to the concerned : NO

The order continues below.

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