High Court rules disallowance calculation on per day basis under Income-tax Rule 6D

The High Court ruled against the assessee and in favor of the Revenue regarding the computation of disallowance under Rule 6D of the Income-tax Rules. It held that the disallowance should be calculated on a per day basis, considering the ceiling on expenditure per day as specified in the rule. The matter was remitted back to the Tribunal for recomputation in line with the court's interpretation. The reference was disposed of with no order as to costs.

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Issues Involved:
1. Method of computation of disallowance u/s 37(3) of the Income-tax Act, 1961 read with Rule 6D of the Income-tax Rules, 1962.

Summary:

Issue 1: Method of Computation of Disallowance u/s 37(3) of the Income-tax Act, 1961 read with Rule 6D of the Income-tax Rules, 1962:

The primary issue was whether the disallowance under Rule 6D should be computed with reference to the total expenditure incurred by an employee during the entire year or with reference to the expenditure incurred during each trip separately. The assessee, a limited company, contended that the disallowance should be computed by multiplying the per day rates specified in Rule 6D with the total number of days spent during the year in travelling. The Income-tax Officer, however, computed the disallowance based on each trip undertaken by the employee.

The Commissioner of Income-tax (Appeals) accepted the assessee's contention and directed the Income-tax Officer to recompute the disallowance accordingly. The Tribunal dismissed the Revenue's appeal, leading to the present reference.

Upon detailed examination, the High Court held that Rule 6D imposes a ceiling on the expenditure incurred in connection with each day of the journey. The allowance per day is subject to the conditions specified in Rule 6D(2)(b), which includes factors such as the employee's salary, place of stay, and whether the employee stayed free of charge in a guest house maintained by the assessee. The computation must be made on a per day basis, and if done correctly, it would make no difference whether the calculation is made journey-wise or for all journeys in the year taken together. The total allowable expenditure would be the same.

The Tribunal's earlier decision in Blackie and Sons (India) Ltd. v. ITO was found to be incorrect as it did not consider the controversy in the proper perspective. The High Court concluded that the computation of disallowance must be made in accordance with Rule 6D, considering the ceiling on expenditure per day.

Conclusion:

The High Court answered the question against the assessee and in favor of the Revenue. The matter was remitted back to the Tribunal to recompute the amount allowable as a deduction u/s 37(3) of the Act read with Rule 6D of the Rules, in accordance with the guidelines provided. The reference was disposed of with no order as to costs.

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