1987 (1) TMI 26 - HC - Income Tax

Business Expenditure Entertainment Expenditure Export Market Development Allowance Weighted Deduction

Issues Involved:

1. Disallowance of expenditure on hosting dinners to foreign delegation members under section 37(2B) of the Income-tax Act.
2. Disallowance of expenditure on lunch and dinners to customers by Delhi branch under section 37(2B).
3. Disallowance of business promotion expenses and guest house maintenance expenditure under sections 37(2B) and 37(4).
4. Disallowance of expenditure paid to clubs for entertaining foreign guests under section 37(2B).
5. Disallowance of expenditure on providing coffee, tea, and snacks to customers under section 37(2B).
6. Eligibility for weighted deduction for various expenditures under section 35B(1)(b).

Issue-wise Detailed Analysis:

1. Disallowance of expenditure on hosting dinners to foreign delegation members under section 37(2B):

The Income-tax Officer disallowed Rs. 17,056 spent on hosting dinners for foreign delegations from the USSR and GDR, considering it entertainment expenditure under section 37(2B). The Appellate Assistant Commissioner upheld this disallowance, stating it did not qualify as business expenditure. However, the Appellate Tribunal allowed the expenditure, finding it was incurred to promote business interests in an "appropriate and befitting manner." The High Court noted that the Tribunal's finding was vague and remanded the matter to the Tribunal to determine if the expenditure was extravagant or lavish and to allow a reasonable amount accordingly.

2. Disallowance of expenditure on lunch and dinners to customers by Delhi branch under section 37(2B):

The Income-tax Officer disallowed Rs. 2,668 spent by the Delhi branch on lunch and dinners for trade customers, considering it entertainment expenditure. The Appellate Assistant Commissioner confirmed the disallowance, but the Appellate Tribunal allowed the expenditure, noting it was not extravagant or lavish. The High Court directed the Tribunal to re-examine the evidence and determine if the expenditure was reasonable and allowable under section 37(1).

3. Disallowance of business promotion expenses and guest house maintenance expenditure under sections 37(2B) and 37(4):

The company claimed Rs. 1,79,155 under "business promotion expenses," including guest house maintenance for foreign guests. The Income-tax Officer disallowed Rs. 2,16,215, considering it entertainment expenditure. The Appellate Assistant Commissioner allowed Rs. 1,79,155, stating it was incurred for foreign customers' food, lodging, and other expenses. The Appellate Tribunal upheld this decision. The High Court noted that the Tribunal did not independently verify the evidence and remanded the matter for re-examination to determine if the expenditure was reasonable and allowable under section 37(1).

4. Disallowance of expenditure paid to clubs for entertaining foreign guests under section 37(2B):

The Income-tax Officer disallowed Rs. 893 spent on club subscriptions for entertaining foreign guests. The Appellate Assistant Commissioner confirmed the disallowance, but the Appellate Tribunal allowed the expenditure, stating it was necessary for entertaining foreign guests. The High Court upheld the Tribunal's decision, noting that the expenditure was allowable under section 37(1).

5. Disallowance of expenditure on providing coffee, tea, and snacks to customers under section 37(2B):

The Income-tax Officer disallowed Rs. 22,722 spent on providing coffee, tea, and snacks to customers, considering it entertainment expenditure. The Appellate Assistant Commissioner allowed the entire claim, and the Appellate Tribunal upheld this decision. The High Court agreed with the Tribunal, stating that providing coffee, tea, and snacks was a business courtesy and allowable under section 37(1).

6. Eligibility for weighted deduction for various expenditures under section 35B(1)(b):

The company claimed weighted deduction for several expenditures under section 35B(1)(b), including agmark charges, export licence fees, export credit guarantee insurance, subscription to export promotion councils, and translation charges. The Appellate Assistant Commissioner allowed these deductions, and the Appellate Tribunal confirmed the decision. The High Court noted that there was no evidence to support the claims for agmark charges, export licence fees, and subscription to export promotion councils. The High Court disallowed these claims but allowed the weighted deduction for export credit guarantee insurance.

Conclusion:

The High Court remanded the matters related to the disallowance of expenditures on hosting dinners, lunch and dinners for customers, and business promotion expenses to the Tribunal for re-examination. It upheld the decisions related to club subscriptions and providing coffee, tea, and snacks. The High Court disallowed the weighted deduction claims for agmark charges, export licence fees, and subscription to export promotion councils but allowed the deduction for export credit guarantee insurance.

← Previous Next →