2015 (2) TMI 760 - HC - Income Tax

Court ruling: Rent for guest house not deductible; cash payments not perquisites; extra shift allowance allowed.

Commissioner of Income Tax, Patiala Versus M/s. Punjab Tractors Ltd, Mohali

The court ruled in favor of the revenue regarding the interpretation of Section 37(4) and 37(5) of the Income Tax Act, stating that rent paid for a guest ... Rent paid to P.S.I.D.C. for guest house - ITAT upholding the order of the CIT(A) deleting addition - Held that:- Sections 37(4) and (5) of the Act are unambiguous in their intent and purpose that expenditure claimed by an assessee on account of guest house charges would not fall under Section 30 of the Act and therefore, cannot be allowed as a deduction. The Tribunal has, therefore, erred in deleting the addition made by the AO by relying upon Section 30 of the Act. The first question is, accordingly, answered in favour of the revenue by holding that payment of guest house charges cannot be allowed as a deduction. - Decided against assessee. Subscription paid directly in the form of cash - treatment as a perquisite in view of Section 40-A (5)(a) (ii) - Held that:- A due consideration of the facts reveals that subscription has been made to professional institutions and clubs. The subscription, therefore, cannot be treated as a perquisite under Section 40(A) (5a) of the Act. Reliance may be placed upon a judgment of the Delhi High Court in Commissioner of Income Tax Vs. Shriram Refrigeration Industries Ltd. (1992 (5) TMI 15 - DELHI High Court). - Decided against revenue. Extra shift allowance - ITAT allowing allowance on the basis of the concern as a whole working as an extra shift - Held that:- ITAT has relied upon a circular issued by Central Board of Direct Taxes while holding in favour of the assessee. A perusal of the judgment in Saraswati Industrial Syndicate's case (1981 (3) TMI 40 - PUNJAB AND HARYANA High Court) reveals that it does not pertain to extra shift allowance and is, therefore, irrelevant. The question has even otherwise already been answered in favour of assessees by in South India Viscose Ltd. Vs. Commissioner of Income Tax, (1997 (7) TMI 9 - SUPREME Court) - Decided against the revenue. Reduction of capital employed by proportionate liabilities in the new tractor division and the foundry division - Held that:- The controversy is covered against the revenue by circular No.380, dated 10.04.1984, issued by the Central Board of Direct Taxes and a judgment of the Bombay High Court in the case of Indian Oil Corporation Vs. S. Rajagopalan ITO, (1973 (4) TMI 12 - BOMBAY High Court ). Counsel for the revenue is unable to raise any meaningful argument against the circular or the aforesaid judgment and had not been demonstrated that the borrowings made by the assessee travelled to the two units.- Decided against the revenue. Issues involved:1. Interpretation of Section 37(4) and 37(5) of the Income Tax Act regarding rent paid for a guest house.2. Treatment of cash payments as perquisites under Section 40(A) (5) (a) (ii) of the Act.3. Allowance of extra shift allowance based on the concern working as an extra shift.4. Addition of capital employed by proportionate liabilities in different divisions.5. Justification of reducing capital employed by proportionate liabilities in different units.Issue 1: Interpretation of Section 37(4) and 37(5) regarding rent paid for a guest house:The dispute revolves around the deduction of rent paid for a guest house by the assessee. The revenue argues that the Tribunal erred in deleting the addition made by the Assessing Officer, as Section 37(4) and 37(5) specifically address rent paid for a guest house, distinct from Section 30 of the Act. The revenue relies on precedents to support their stance. However, the assessee contends that as per Section 30, expenditure on rent, including for a guest house, falls under allowable deductions. The court clarifies that while Section 30 seemingly allows for such deductions, Section 37(4) and (5) explicitly disallow expenditure on guest house charges as deductions. The court rules in favor of the revenue, stating that guest house charges cannot be allowed as a deduction.Issue 2: Treatment of cash payments as perquisites under Section 40(A) (5) (a) (ii) of the Act:The question at hand is whether cash payments made as subscriptions can be considered perquisites under the Act. The revenue argues that such payments should be treated as perquisites since they are part of the employee's salary. On the other hand, the assessee cites judgments to support that cash payments to professional institutions and clubs do not qualify as perquisites under the Act. The court agrees with the assessee, ruling that such subscriptions do not constitute perquisites under Section 40(A) (5) (a) (ii) of the Act.Issue 3: Allowance of extra shift allowance based on the concern working as an extra shift:The contention here is whether the Tribunal erred in allowing extra shift allowance based on the concern working as an extra shift. The revenue argues that the allowance should only be for the relevant number of days, contrary to the Tribunal's decision based on a circular by the Central Board of Direct Taxes. The court finds that the circular and relevant judgments support the assessee's claim, ruling against the revenue and in favor of the assessee.Issue 4: Addition of capital employed by proportionate liabilities in different divisions:The question raised pertains to the addition of capital employed by proportionate liabilities in different divisions. However, detailed analysis and resolution of this issue are not provided in the judgment.Issue 5: Justification of reducing capital employed by proportionate liabilities in different units:The controversy here is covered by a circular and a judgment of the Bombay High Court. The revenue fails to provide substantial arguments against the circular or the mentioned judgment. Consequently, the court rules against the revenue and answers the question accordingly.In conclusion, the judgment addresses various issues related to the interpretation and application of different sections of the Income Tax Act, providing detailed analysis and rulings on each matter brought before the court.