TMI Blog2004 (6) TMI 577X X X X Extracts X X X X X X X X Extracts X X X X ..... of section 37(2A) shall be considered for this purpose and relief allowed by the CIT(A) is not admissible. Without prejudice to the above the assessee has failed to produce any evidence to the effect of employees participation in this regard. It is also stated that the order relied upon by the Ld. CIT(A) has not been accepted by the department and an appeal has been filed before the ld. ITAT." In the Tax Audit Report it was mentioned that a sum of Rs. 2,79,621 was debited in the profit and loss account on account of entertainment expenses and that this amount also included the amount of entertainment spent on employees. In the note appended to the return of income the assessee had claimed that 35% of the entertainment expenses debited to the profit and loss account, included entertainment expenses in which the employees participated and to this extent the amount has to be construed as a allowable business expenditure and only on the balance the provisions of section 37(2A) has to be applied and disallowance made. This submission was not accepted by the Assessing Officer. The CIT(A) accepted the submission made by the assessee to the effect that when guests of the company are ent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g Officer did not apply to the case of the assessee for the reason that the articles presented as gifts did not carry the name or logo of the assessee and as such they were not to be considered as expenditure on advertisement. The assessee placed reliance on several judicial pronouncements in this regard. Reference may be made to the decision of the Honourable Delhi High Court in the case of CIT v. Indian Aluminum Cables Ltd. (No. 2) [1990] 183 ITR 61 (Delhi) Pune Bench of Income-tax Appellate Tribunal in the case of Bharat Forge Ltd. v. Dy. CIT [1995] 53 ITD 575 (Pune), CIT v. Allana Sons (P.) Ltd. [1993] 70 Taxman 288 (Bom.). The CIT(A) accepted the plea of the assessee that the articles of gift were not in the nature of advertisement as they did not carry the logo or name of the assessee and therefore were outside the purview of Rule 6-B of the Rules. The CIT(A) therefore deleted the addition made by the Assessing Officer. 5. Before us the learned counsel for the revenue relied on the order of the Assessing Officer. We find no grounds to interfere with the order of the CIT(A). In view of the fact that the gift articles did not carry the name or logo of the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment. This sum represented salary of employees of system development division and other expenses. These employees according to the assessee were instrumental in developing product for newer application in the same line of business. In the books of account of the assessee the assessee treated 1/3rd of this expense as relating to the previous year and the remaining 2/3rd expenses was written off at 1/3rd each in the succeeding two financial years. According to the assessee the benefit from the research and development was likely to flow for three years and therefore the expenditure on such research and development was also spread over for the period for which the assessee derived benefit. The assessee in the return of income however claimed the entire expenditure as deductible since they were of revenue in nature and incurred during the previous year. The Assessing Officer disallowed the claim for deduction by observing that the amount was paid only as Salary to employees and the system, which they developed, was not specified nor were the details of Research and development specified. According to the Assessing Officer the expenditure on Research and Development or other expenditure ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ery advantage of enduring nature acquired by an assessee that brings the case within the principle laid down in this test. What is material to consider is the nature of the advantage in a commercial sense and it is only where the advantage is in the capital field that the expenditure would be disallowable on an application of this test. If the advantage consists merely in facilitating the assessee s trading operations or enabling the management and conduct of the assessee s business to be carried on more efficiently or more profitably while leaving the fixed capital untouched, the expenditure would be on revenue account, even though the advantage may endure for an indefinite future. The test of enduring benefit is therefore not a certain or conclusive test and it cannot be applied blindly and mechanically without regard to the particular facts and circumstances of a given case. 11. The Supreme Court further implied the above principle in Alembic Chemical Works Co. Ltd. v. CIT [1989] 77 ITR 377 by holding as follows: The idea of "once for all "payment and enduring benefit are not to be treated as something akin to statutory conditions; nor are the notions of Capital or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1/3rd of the expenditure as expenditure for the current year and has sought to write off the remaining 2/3rd expenditure over a period of 2 years later would not in any manner affect the right of the assessee to claim the entire expenditure as Revenue expenditure under section 37(1). In this connection we may usefully refer to two of the decisions relied on by the Counsel for the assessee. Kedarnath Jute Mfg. Co. Ltd. v. CIT [1971] 82 ITR 363 (SC) wherein the Honourable Supreme Court has held as follows: "Whether the assessee is entitled to a particular deduction or not will depend on the provision of law relating thereto and not on the view which the assessee might take of his rights nor can the existence or absence of entries in the books of account be decisive or conclusive in the matter." In Tuticorin Alkali Chemicals Fertilizers Ltd. v. CIT [1997] 227 ITR 172 (SC) the Honourable Supreme Court has referred to Accounting practice and their relevance in deciding taxability or otherwise in the following words: "It is true that this Court has very often referred to accounting practice for ascertainment of profit made by a company or value of the assets of a compa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the Act to ascertain the nature and quantum of business they had procured for the assessee so as to ascertain the reasonableness of the quantum of commission paid to them. The aforesaid two persons did not attend before the Assessing Officer in response to the summons but had filed some details of the business they had procured in the "DAK". The Assessing Officer vide his letter dated 1-3-1995 called upon the assessee to file details with relevant documents to justify the payment of commission to these parties failing which the payment will be considered not a genuine payment. The Assessing Officer further informed the assessee that the aforesaid two concerns operated from the same business premises of the assessee having the same telephone numbers. 19. The assessee vide his reply dated 20-3-1995 explained that these companies procured business for the assessee from the Soviet Union. It was explained that M/s. Licensingtorg India Pvt. Ltd. was an Indian Joint Venture company with Russian participation. This person was paid 5% on the contracts procured by them after the contract was signed. As far as M/s. Indian Reprographic System is concerned they were also helpful in pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... /s. Licensintorg Co., viz., the fact that Mr. B.K. Modi was chairman of this company and also M.D. of the assessee company and while acting as chairman of M/s. Licensintorg Co., his business connections in USSR could have been passed on to the assessee but had chosen to employ a medium of a company to liaison business connections in USSR and claimed to have paid a commission to such company. This factor according to CIT(A) also points out to the fact that the claim for deduction was without any basis. The CIT(A) has also made a reference to the statement of one Mr. Rajeev Sisodia, Marketing Manager of M/s. Indian Reprographic Systems, recorded in the case of the assessee in A.Y. 1994-95 to the effect that no services were rendered by them. 21. Aggrieved by the order of the CIT(A), the assessee is in appeal before us. It was submitted by the learned counsel for the assessee that the assessee did not have any liaison office at USSR and that both the aforesaid parties had their business connections in several countries. He pointed out the fact that the detail of contracts in respect of which commission was paid was duly filed before the Assessing Officer. According to him 5% ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eal of the assessee reads as follows: "The Ld. CIT(A) has erred in law and on facts in upholding the disallowance made by the Assessing Officer on account of membership fees to clubs for the use of its directors and executives, to the extent of Rs. 12,000 for club membership fees of Dr. Sella, Managing Director" "The Ld CIT(A) has erred in law and on facts in confirming the disallowance of income-tax liability of Rs. 2,40,000 of the Managing Director borne by the appellant, on the basis of past appellate orders" It is not in dispute that similar issue arose for consideration in assessee s case for the assessment year 1991-92 ITA No. 2245/Del./99 and this Tribunal had allowed the claim for deduction on account of club membership fees of Dr. Sella, MD. while the claim for deduction on account of income tax liability of the M.D. borne by the assessee was disallowed by the Tribunal. Respectfully following the decisions referred to above and for the reasons stated in the aforesaid appeals, the second ground of appeal of the assessee is allowed while the fourth ground of appeal of the assessee is dismissed. 24. The third ground of appeal of the assessee was not pressed at the t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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