9911796707
TMI Blog1977 (8) TMI 11X X X X Extracts X X X X X X X X Extracts X X X X ..... tion ? " The facts leading to this reference are as follows We are concerned with assessment years 1966-67 to 1969-70, the relevant accounting years being calendar years 1965, 1966, 1967 and 1968. The assessee is a private limited company which carries on business in textile accessories. It follows mercantile system of accounting. During the relevant years of account, the company had maintained, four cars at Bombay and two cars at Ahmedabad. In connection with these six motor cars the company had incurred certain expenditure towards maintenance and running of motor cars and had also claimed depreciation in respect of these six cars. The particulars regarding the motor car expenses and the motor car depreciation as also the car expenses dis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for depreciation for motor cars. Against the decision of the AAC the revenue took the matter in appeal before the Appellate Tribunal. The Tribunal found it as a fact that the directors of the company and their family members did not own cars, but the cars were maintained by the assessee-company for the purpose of its own business and in the course of the business activity the cars were given to the directors for their use. The Tribunal found that the assessee was a closely-held company to which the provisions of s. 40(c) would be appli- cable and the cars which were owned by the company were used by the directors and their family members. Therefore, the impugned expenditure would be clearly hit by the provisions of s. 40(c)(ii) of the Act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not be deducted in computing the income chargeable under the head " Profits and gains of business or profession ". Clause (a) applies in the case of any assessee ; cl. (b) applies in the case of any firm; clause (c) applies in the case of any company and reads as follows : " 40. (c) in the case of any company --- ...... (ii) any expenditure or allowance in respect of any assets of the company used by any person referred to in sub-clause (i) either wholly or partly for his own purposes or benefit ", and the persons referred to in cl. (i) are " director and a person who has a substantial interest in the company or a relative of the director or of such person, as the case may be ". It is, therefore, clear reading the provisions of cl. (c), ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... accruing to it therefrom. Therefore, in order to disallow any particular expenditure under s. 40(c)(ii), the test which is to be applied is whether it is reasonable or whether it is excessive having regard to the legitimate business needs of the company and the benefit derived by or accruing to the company from the expenditure. It is possible that in certain cases, in the light of the facts of a particular case, the application of the provisions of s. 37 and s. 40 may overlap, but if it falls under s. 40(c), the provisions of s. 37 cannot be invoked by virtue of the clear provision of the non-obstante clause of s. 40. However, it must be borne in mind that the whole approach of the revenue authorities should be from the point of view of com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e-tax Officer is reasonable having regard to the business needs of the company or benefit accruing to it therefrom. As indicated earlier, the Income-tax Officer has restricted the disallowance to 1/4th of the total expenditure in respect of motor car expenses and also in respect of depreciation. The disallowance, in the circumstances of the case, cannot be said to be excessive or unreasonable. " We are unable to see how the question of disallowance being excessive or unreasonable can ever arise under s. 40(c)(ii). What has to be considered by the I.T. authorities under s. 40(c)(ii) is whether the expenditure which is claimed is unreasonable or excessive and not whether the disallowance is excessive or unreasonable. Secondly, the Tribunal h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to call for a supplementary statement of the case from the Tribunal; or to decline to answer the question raised by the Tribunal and to leave the Tribunal to take appropriate steps to adjust its decision under section 66(5) in the light of the answer of this court. If we direct the Tribunal to submit a supplementary statement of the case, the Tribunal will, according to the decisions of this court in New Jehangir Vakil Mills Ltd. v. Commissioner of Income-tax [1959] 37 ITR 11, Petlad Turkey Red Dye Works Co. Ltd. v. Commissioner of Income-tax [1963] 48 ITR (SC) and Keshav Mills Co. Ltd. v. Commissioner of Income-tax [1965] 56 ITR 365, be restricted to the evidence on the record and may not be entitled to take additional evidence. That may ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
