C.I.T., ROHTAK vs. ]/S.PORRITS & SPENCER (ASIA) LTD.

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ITR/3/1997HC Punjab & HaryanaPHHC01035394199716 September 2008Author: MR JUSTICE RAKESH KUMAR GARG,MR. JUSTICE ADARSH KUMAR GOEL3 pages
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What did the High Court hold?

The High Court addressed the three questions of law. Regarding Question 1, the Tribunal's direction to exclude road tax from disallowance under Sections 37(3A) and 37(3D) was overturned. The Court relied on the Supreme Court's decision in *Britannia Industries Limited v. Commissioner of Income-tax and another* (2005) 278 ITR 546, which held that Section 31 is not attracted to cases covered by the disallowance provisions of Sections 37(3A) to 37(3D). Therefore, this question was answered in favour of the revenue and against the assessee. For Question 2, the Court noted that this issue was covered by its order passed on the same day in other references involving the same assessee, and thus decided it in the same terms. The specific outcome for this question is not detailed here. For Question 3, the Court held that the proviso to Section 43B is retrospective, following the Supreme Court's judgment in *Allied Motors P. Ltd. v. CIT* (1997) 224 ITR 677. This question was answered in favour of the assessee and against the revenue. The reference was disposed of accordingly.

What were the facts?

This case involves a reference to the High Court of Punjab and Haryana at Chandigarh concerning an Income Tax Appellate Tribunal (ITAT) order for the assessment year 1985-86. The applicant is the Commissioner of Income-tax, Haryana, Rohtak, and the respondent is M/s Porrits & Spencer (Asia) Ltd., New Delhi. The ITAT's decision arose from appeals ITA Nos. 3336 and 3506/DEL/1989. The High Court was asked to opine on three questions of law referred by the ITAT.

What were the issues?

The High Court was asked to decide three questions of law: 1. Whether the Tribunal was justified in directing the Assessing Officer to recalculate the disallowance under Sections 37(3-A) to 37(3D) excluding expenses on road tax. 2. Whether the Tribunal was right in upholding the deletion of an addition of Rs. 1,58,707/- made under Section 36(1)(ii) on account of commission/bonus paid to employees. 3. Whether the ITAT was right in holding that the proviso to Section 43B, inserted by the Finance Act, 1987, effective from April 1, 1988, is retrospectively applicable. Arguments presented: For Question 1, the assessee contended that car expenses, including road tax, repair, insurance, and driver's wages, were allowable under Section 31 and not Section 37, thus not subject to disallowance under Sections 37(3A) and 37(3D). They relied on *Nathmal Bankat Lal Parikh & Co. Vs. CIT*, 122 ITR 168 (AP). The revenue's arguments for this issue are not explicitly recorded in the provided text, other than the court's ultimate finding against the assessee. For Question 2, the judgment indicates it was covered by a prior order of the Tribunal in related appeals. No specific arguments for either side are detailed for this question in the provided text. For Question 3, the judgment indicates it was covered by a Supreme Court judgment. No specific arguments for either side are detailed for this question in the provided text.

Which sections of the Income-tax Act were involved?

Section 37(3-A),Section 37(3D),Section 31,Section 36(1)(ii),Section 43B

AI-generated summary — verify with the full judgment below

Cause title — parties, addresses and appearances
IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH. I.T.R. No.3 of 1997 Date of decision: 16.09.2008 The Commissioner of Income-tax, Haryana, Rohtak. -----Applicant Vs. M/s Porrits & Spencer (Asia) Ltd., New Delhi. -----Respondent CORAM:- HON'BLE MR JUSTICE ADARSH KUMAR GOEL HON'BLE MR JUSTICE RAKESH KUMAR GARG Present: Mr. Yogesh Putney, Sr. Standing Counsel for the revenue. Mr. A.C. Jain, Advocate for assessee. -----

ORDER: Following questions of law have been referred for opinion of this Court by the Income Tax Appellate Tribunal, Delhi Bench ‘E’, arising out of I.T.A. Nos.3336 and 3506/DEL/1989 in respect of assessment year 1985-86:- “1. Whether, on the facts and in the circumstances of the case, the Tribunal was justified in directing the Assessing Officer to recalculate the disallowance u/s 37(3-A) to 37(3D) excluding the expenses on road- tax.”? 2. “Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in upholding the decision of the Ld.CIT(A) deleting the addition of Rs.1,58,707/- made u/s 36(1)(ii) on a/c of commission/bonus paid to employees”? 3. “Whether, on the facts and in the circumstances of the case, the ITAT was right in law in holding that the proviso to section 43B inserted by the Finance Act, 1987 w.e.f. 1.4.88 is retrospectively applicable?”

As regards question No.1, the finding of the Tribunal is as under:- “12. Next ground is against the disallowance of Rs.25,707/- u/s 37(3A) and 37(3D). At the time of hearing before us it is submitted that the car expenses, considered for disallowance @ 20% as per provisions of Sec. 37(3A) and 37(3D) included a sum of Rs.1,28,582/- on repair, insurance, road tax and of car and wages of driver. Such expenses are allowable u/s 31 of the I.T. Act and not u/s 37. Hence, the same cannot be considered for disallowance u/s 37(3A) and 37(3D). In this respect, he relied upon Nathmal Bankat Lal Parikh & Co. Vs. CIT, 122 ITR 168 (AP).

The above view cannot be accepted in view of judgment of the Hon’ble Supreme Court in Britannia Industries Limited v. Commissioner of Income-tax and another (2005) 278 ITR 546, holding that section 31 will not be attracted to cases which are covered by the provisions of disallowance under Section 37(3-A) to 37(3D). Accordingly, the said question is answered against the assessee and in favour of the revenue. Question No.2 is covered by our order passed today in I.T.R. Nos.80 to 82 of 1982 (M /s Porrits & Spencer (Asia) Ltd., New Delhi v. The Commissioner of Income-tax, Haryana). This question is accordingly, decided in same terms.

As regards question No.3, the matter is covered against the revenue in view of judgment of the Hon’ble Supreme Court in Allied Motors P. Ltd. v. CIT (1997) 224 ITR 677, holding that Section 43-B is retrospective. Accordingly, the said question is answered in favour of assessee and against the revenue.

The reference is disposed of accordingly.

( ADARSH KUMAR GOEL ) JUDGE September 16, 2008

( RAKESH KUMAR GARG ) ashwani JUDGE 3

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