MEHTA TRANSPORT CO. vs. COMMISSIONER OF INCOME TAX

ITR/10/1988HC GujaratGJHC24013088198801 November 2001Author: HONOURABLE MR. JUSTICE MOHIT S. SHAH,HONOURABLE MR. JUSTICE D.A.MEHTA3 pages
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What did the High Court hold?

The High Court held that the ITAT's finding that the payment of Rs. 6,000 per month per truck was unreasonable and that Rs. 5,000 per month per truck was a reasonable amount was a finding of fact. The Tribunal had applied the correct test under Section 40A(2). Therefore, the answer to the question referred at the instance of the revenue was in the affirmative, meaning Rs. 5,000 per month per truck was allowable, which is in favour of the assessee and against the revenue. Conversely, the answer to the question referred at the instance of the assessee, which sought allowability of the entire claim (implying a rate higher than Rs. 5,000), was in the negative, favouring the revenue and against the assessee. The reference was disposed of accordingly.

What were the facts?

The assessee, Mehta Transport Co., engaged in the business of plying trucks, obtained some on hire from family members of partners and the partners themselves. For assessment year 1982-83, the assessee paid Rs. 19,32,000 as freight to family members, which worked out to Rs. 6,000 per month per truck, despite an agreement for Rs. 4,000 per month. The Income-Tax Officer (ITO) disallowed Rs. 6,44,000 (1/3rd of the claim) invoking Section 37(1) and Section 40A(2). The CIT(A) confirmed this. The Income-Tax Appellate Tribunal (ITAT) held that disallowance under Section 40A(2) was warranted but reduced the disallowance, allowing Rs. 5,000 per month per truck as reasonable, considering it was allowed for a part of the earlier year. The ITO was directed to recalculate relief.

What were the issues?

1. Whether, on the facts and circumstances and considering Section 40A(2), freight charges at Rs. 5,000 per month per truck were allowable as against Rs. 4,000 per month per truck allowed by the ITO? (Question at the instance of the revenue). The revenue contended that only Rs. 4,000 per month per truck was allowable as per the agreement. 2. Whether, on the facts and circumstances and considering Section 40A(2), the entire claim on account of freight was allowable? (Question at the instance of the assessee). The assessee contended that the entire claim should be allowed, implying a rate higher than Rs. 5,000 per month per truck was permissible. Both questions turned on the interpretation and application of Section 40A(2) of the Income Tax Act, 1961, concerning the allowability of expenditure incurred in respect of payments made to persons specified in Section 40A(2)(b).

Which sections of the Income-tax Act were involved?

Section 40A(2),Section 37(1)

AI-generated summary — verify with the full judgment below

IN THE HIGH COURT OF GUJARAT AT AHMEDABAD

INCOME TAX REFERENCE No 10 of 1988

For Approval and Signature:

Hon'ble MR.JUSTICE M.S.SHAH and Hon'ble MR.JUSTICE D.A.MEHTA

============================================================ 1. Whether Reporters of Local Papers may be allowed : NO 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 Civil Judge? : NO

The order continues below.

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