1977 (8) TMI 77 - AT - Income Tax

Appeal Outcome: Allowances & Disallowances Explained

The appeal was partly allowed, with certain disallowances and additions being confirmed, while others were deleted based on legal precedents and the ... - Issues Involved:1. Disallowance of Rs. 17,747 out of travelling expenses of directors.2. Disallowance of Rs. 2,352 in subscription account.3. Disallowance of Rs. 2,165 being expenditure on Dasara mamools paid to staff.4. Disallowance of Rs. 44,819 out of the remuneration to directors.5. Addition of Rs. 1,328 being the cost of replacement of old boiler.6. Disallowance of Rs. 2,000 out of motor car expenses.7. Addition of Rs. 11,98,787 as premium received on sale of import entitlements.Issue-wise Detailed Analysis:1. Disallowance of Rs. 17,747 out of travelling expenses of directors:The Income-tax Officer disallowed Rs. 17,747 from the travelling expenses of the directors under R. 6(d) of the Income-tax Rules, 1962. The disallowed amount included Rs. 4,383 for travelling expenses exceeding the allowable limit, Rs. 10,385 for entertainment expenses incurred by the Managing Director, and Rs. 2,979 for gifts and entertainment expenses by other directors. The Tribunal found the disallowance of Rs. 4,383 in order as per R. 6(d). However, the entertainment expenses of Rs. 10,385 were allowed based on the Andhra Pradesh High Court's order in the assessee's own case for the assessment year 1967-68, which held such expenses as legitimate business expenditure. Similarly, the gifts and entertainment expenses of Rs. 2,979 were allowed following the Tribunal's decision in the assessee's case for the assessment year 1970-71, where such expenses were considered connected with the business and not related to travelling, thus not falling under R. 6(d).2. Disallowance of Rs. 2,352 in subscription account:This ground was not pressed by the assessee's counsel during the hearing, and therefore, the disallowance stands.3. Disallowance of Rs. 2,165 being expenditure on Dasara mamools paid to staff:The Tribunal allowed this expenditure, citing a similar case of another tobacco exporter where such expenditure was considered incidental to carrying on the business and thus an admissible deduction.4. Disallowance of Rs. 44,819 out of the remuneration to directors:The Tribunal confirmed the disallowance of Rs. 44,819, limiting the allowable remuneration to Rs. 6,000 per month as per s. 40(c)(B), finding the provisions of s. 40(c)(B) applicable to the facts of the case.5. Addition of Rs. 1,328 being the cost of replacement of old boiler:This ground was not pressed at the time of hearing, and therefore, the addition stands.6. Disallowance of Rs. 2,000 out of motor car expenses:The Tribunal found merit in the assessee's contention that even if the cars were used by the directors for personal work, the expenditure should be treated as a legitimate business expense for the company and could be considered as perquisites in the directors' personal assessments. Therefore, the disallowance was deleted.7. Addition of Rs. 11,98,787 as premium received on sale of import entitlements:The Tribunal held that the premium received on the sale of import entitlements did not belong exclusively to the assessee. By virtue of an agreement dated 5th Jan, 1971, the Lakshmaiah and Satyanarayana groups acquired an overriding title over their share of the premium. The share of the premium received by these groups was by way of diversion of income resulting from an overriding title and thus did not reach the assessee as its income. The Tribunal concluded that only the assessee's share of the premium, Rs. 5,15,140, should be included in its total income. Furthermore, the income accrued to the assessee only on 8th Aug, 1973, after the Delhi High Court passed the compromise decree, and thus it should be assessed in the subsequent year. Consequently, the entire sum of Rs. 11,98,787 included in the assessment was deleted.Conclusion:The appeal was partly allowed, with certain disallowances and additions being confirmed, while others were deleted based on legal precedents and the specific facts of the case.