1989 (5) TMI 117 - AT - Income Tax

Summary

Issues Involved:

1. Disallowance of entertainment expenses.
2. Disallowance of expenditure on temples.
3. Disallowance of rest house expenses.
4. Disallowance of farm land operation expenses in Bhutan.
5. Rejection of claim for deduction of sur-tax.
6. Disallowance of gratuity paid to directors.
7. Disallowance of capital loss on investment in shares of Maruti Ltd.
8. Charging of interest under sections 139(8), 215, and 216.

Issue-wise Detailed Analysis:

1. Disallowance of Entertainment Expenses:

The assessee, M/s. Mohan Meakin Breweries Ltd., claimed Rs. 3,01,181 as entertainment expenses, but the Income-tax Officer (ITO) allowed only Rs. 30,000 under section 37(2A), disallowing Rs. 2,71,181. The Commissioner of Income-tax (Appeals) [CIT(A)] did not accept the assessee's argument that humanitarian expenses should not be considered hospitality expenses. The CIT(A) also noted that the ITO had not examined the details and sent the matter back for a fresh decision. The Tribunal directed the ITO to check for employees' participation in the expenses and exclude those accordingly, referencing a previous Tribunal order.

2. Disallowance of Expenditure on Temples:

The assessee claimed Rs. 12,797 for temple expenses, which the ITO disallowed. The CIT(A) confirmed the disallowance, stating the expenses were religious donations and not business expenses. The Tribunal noted that the temple in Lucknow was not proven to be within the factory premises and upheld the CIT(A)'s decision, referencing relevant case laws.

3. Disallowance of Rest House Expenses:

The assessee claimed Rs. 5,43,803.78 under section 37(4) read with section 37(5). The CIT(A) allowed Rs. 89,609 for depreciation and repairs but disallowed Rs. 4,54,195 for salaries, wages, and provisions. The Tribunal restored the matter to the ITO to ascertain if any part of the cost of provisions fell outside the ambit of guest house maintenance, following a similar direction from a previous year.

4. Disallowance of Farm Land Operation Expenses in Bhutan:

The ITO and CIT(A) disallowed Rs. 31,209 for farm land operation expenses in Bhutan. The Tribunal referred to its previous order for the preceding year and directed the ITO to ascertain the facts and nature of expenses and deal with the matter accordingly.

5. Rejection of Claim for Deduction of Sur-tax:

The CIT(A) upheld the disallowance of sur-tax deduction based on decisions from the Calcutta and Karnataka High Courts. The Tribunal, agreeing with these decisions, confirmed that sur-tax paid by the assessee was not an admissible deduction.

6. Disallowance of Gratuity Paid to Directors:

The assessee paid Rs. 86,250 as gratuity to directors, which the ITO disallowed under section 40A(5). The CIT(A) confirmed the disallowance, stating the payments were not in the nature of gratuity but fell within the ambit of section 40A(5). The Tribunal upheld the CIT(A)'s decision, agreeing that the payments were salary as per Explanation 2 to section 40A(5).

7. Disallowance of Capital Loss on Investment in Shares of Maruti Ltd.:

The assessee claimed a capital loss of Rs. 10,01,000 on shares of Maruti Ltd., which the ITO disallowed, stating the final position on the realisability of the investment was undeterminable. The CIT(A) confirmed the ITO's decision. The Tribunal upheld the disallowance, noting the proceedings before the Commissioner of Payments were not over and the ultimate realisability was not determinable.

8. Charging of Interest under Sections 139(8), 215, and 216:

The assessee argued that the ITO should have exercised discretion under Rule 117A to waive interest under section 139(8). The CIT(A) directed the ITO to examine the matter if the assessee applied under Rule 117A. The Tribunal upheld this direction. For interest under section 215, the Tribunal upheld the CIT(A)'s similar direction under Rule 40. For interest under section 216, the CIT(A) had already directed the ITO to recompute deficiencies, and the Tribunal found no need for interference.

Separate Judgments:

- The Accountant Member disagreed with the Judicial Member on the interpretation of section 37(4) regarding guest house expenses, emphasizing that special provisions in section 37(4) should prevail over general provisions in sections 30, 31, and 32.
- The Third Member, addressing the difference of opinion, concluded that both Members agreed on not allowing expenses under sections 30, 31, and 32 in the face of section 37(4), thus resolving the misunderstanding.

Conclusion:

The appeal was partly allowed, with specific directions for re-examination and confirmation of disallowances as per the Tribunal's detailed analysis and previous orders.