COMMISSIONER OF INCOME TAX vs. AHMEDABAD MFG & CALICL PTG CO

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ITR/383/1983HC GujaratGJHC24011849198301 April 1998Author: HONOURABLE MR. JUSTICE R.K.ABICHANDANI,HONOURABLE MR. JUSTICE KUNDAN SINGH3 pages
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What did the High Court hold?

The High Court answered all three questions in the affirmative, in favour of the assessee. Regarding the first issue, the Court held that the Tribunal was justified in allowing the tea and snack expenses under section 37(2B) of the Act, as they were considered hospitality and bare necessity, not lavish entertainment, aligning with the principles laid down in CIT vs. Patel Brothers and Company Ltd. and its Supreme Court affirmation. For the second issue, the Court affirmed the Tribunal's decision to allow the Rs. 17,10,000 expenditure on salary and wages arising from the Industrial Court award, based on its own decision in ITR No. 154 of 1983. Concerning the third issue, the Court upheld the Tribunal's grant of development rebate at 25% on the P.V.C. Plant, following its own precedent in Ahmedabad Manufacturing Co.Ltd. vs. CIT (162 ITR, 800), and stated that no question of law was involved in this matter. The reference was answered accordingly, with no order as to costs.

What were the facts?

The Commissioner of Income Tax (Revenue) referred three questions of law to the High Court of Gujarat concerning the assessment year 1975-76. The assessee, Ahmedabad Mfg & Calico Ptg Co, had claimed entertainment expenses of Rs. 46,070 for tea and snacks provided to customers and merchants. The Income Tax Officer (ITO) disallowed this, but the Commissioner (Appeals) allowed it. The Income Tax Appellate Tribunal (Tribunal) also upheld the allowance, relying on High Court and Supreme Court decisions. The assessee also claimed Rs. 17,10,000 for salary and wages under an Industrial Court award, which the ITO disallowed but the Tribunal allowed, following its own prior decision. Finally, the assessee claimed development rebate at 25% on its PVC Plant, which the Tribunal allowed, citing its own previous rulings and a High Court decision in the assessee's own case.

What were the issues?

The Tribunal had to decide three questions of law: 1. Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in concluding that the tea and other expenses of Rs. 46,070 incurred by the assessee were not disallowable under section 37(2B) of the Income-tax Act, 1961? - Assessee's contention: The expenses were not disallowable as they constituted hospitality and bare necessity, not entertainment per se, citing CIT vs. Patel Brothers and Company Ltd. and its Supreme Court affirmation. - Revenue's contention: Not recorded. 2. Whether on the facts and in the circumstances of the case, the Tribunal was right in law in concluding that the expenses of Rs. 17,10,000 incurred by the assessee on account of salary, wages etc. under the Industrial Court award was allowable as an expenditure? - Assessee's contention: The expenses were allowable as they arose from a liability under an Industrial Court award, following the Tribunal's decision for a prior assessment year and this Court's decision in ITR No. 154 of 1983. - Revenue's contention: Not recorded. 3. Whether on the facts and in the circumstances of the case, the Tribunal was right in law in concluding that the assessee was entitled to development rebate at the rate of 25% on its P.V.C. Plant? - Assessee's contention: Entitled to development rebate at the higher rate, following the Tribunal's decisions for earlier assessment years and this Court's decision in Ahmedabad Manufacturing Co.Ltd. vs. CIT (162 ITR, 800). - Revenue's contention: Not recorded.

Which sections of the Income-tax Act were involved?

Section 37(2B),Section 256(1)

AI-generated summary — verify with the full judgment below

IN THE HIGH COURT OF GUJARAT AT AHMEDABAD

INCOME TAX REFERENCE No 383 of 1983

For Approval and Signature:

Hon'ble MR.JUSTICE R.K.ABICHANDANI and MR.JUSTICE KUNDAN SINGH ============================================================ 1. Whether Reporters of Local Papers may be allowed to see the judgements?

2.

To be referred to the Reporter or not?

3.

Whether Their Lordships wish to see the fair copy of the judgement?

4.

Whether this case involves a substantial question 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?

-------------------------------------------------------------- COMMISSIONER OF INCOME TAX Versus AHMEDABAD MFG & CALICL PTG CO -------------------------------------------------------------- Appearance: MR Pranav G Desai for Mr. MANISH R BHATT for Petitioner SERVED BY RPAD - (N) for the Respondent

--------------------------------------------------------------

CORAM : MR.JUSTICE R.K.ABICHANDANI and MR.JUSTICE KUNDAN SINGH Date of decision: 01/04/98

ORAL JUDGEMENT (Per R.K.Abichandani,J)

The Income-tax Appellate Tribunal, Ahmedabad has referred the following three questions for the opinion of this Court under section 256(1) of the Income-tx Act, 1961. "

1.

Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in coming to the conclusion that the tea and other expenses of Rs. 46,070/- incurred by the assessee were not disallowable under the provisions of section 37(2B) of the Income-tax Act, 1961 ?

2.

Whether on the facts and in the circumstances of the case, the Tribunal was right in law in coming to the conclusion that the expenses of Rs. 17,10,000/- incurred by the assessee on account of salary wages etc. under the Industrial Court award was allowable as an expenditure ?

3.

Whether on the facts and in the circumstances of the case, the Tribunal was right in law in coming to the conclusion that the assessee was entitled to development rebate at the rate of 25% on its P.V.C. Plant ?"

2.

The relevant assessment year is 1975-76. The assessee filed its return of income on 20.10.75 in which it claimed entertainment expenses of Rs. 46070/under section 37(2B) of the Act. The expenditure was claimed in respect of snacks, tea etc. provided to the customers and merchants visiting the assessee's premises. The ITO disallowed the expenditure. CIT (appeals) however, allowed the said expenditure considering that no individual item was over Rs.500/under Rs.17,10,000/- on account of salary, wages etc. payable by the assessee under the award made by the Industrial Court. The Income-tax Officer had disallowed it but the Tribunal following its decision for the assessment year 1974-75 in the assessee's own case, held that it was an allowable expenditure. In the case of this assessee, the question similar to the present question no. 2 was considered by this Court in ITR No.154 of 1983 and in our decision given today in that Reference, we have held that the Tribunal was right in holding that the expenditure in respect of which liability of the assesee arises under the award of Industrial Court was an allowable deduction. For the same reasons as are given in our decision rendered today in ITR No.154 of 1983, we answer the question no. 2 in the affirmative in favour of the assessee.

4.

So far as the question no. 4 which relates to the claim of the assessee for granting development rebate at a higher rate on PVC plant, the Tribunal following its decision in assessee's own cases, particularly for the assessment years 1966-67, 1967-68 accepted the claim of the assessee. In the assessee's own case in respect of the assessment years 1966-67 and 1967-68, reference was made to the High Court on various questions including the said question regarding development rebate at a higher rate on PVC plant. This Court by its decision in Ahmedabad Manufacturing Co.Ltd. vs.CIT, reported in 162 ITR,800 has answered the question in favour of the assessee and against the Revenue inter alia holding that no question of law is involved. Following the said decision in the petitioner's own case, we answer question no. 4 in the affirmative in favour of the assessee.

5.

The Referrence stands answered accordingly with no order as to costs.

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