1989 (12) TMI 91

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....A) mentioned that HHEC is a subsidiary of STC and the assessee is one of its associates since 1971 to whom it is rendering export promotion services vide its foreign office in Hemburg, and other countries and in the past the assessee has been allowed deduction of service charges paid to HHEC @ 50 per cent. Therefore, he allowed the weighted deduction of 50 per cent of the subscription. The Revenue is aggrieved. 3. The learned Deptl. Representative Miss K. Sahai submitted that the weighted deduction on export promotion council cannot be allowed in view of decision of Andhra Pradesh High Court in the case of CIT vs. Navbharat Enterprises Pvt. Ltd. reported in (1987) 63 CTR (A) 187 : (1988) 170 ITR 332 (A), where the specific point has arisen....

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....t can be through any association with another person. The CIT(A) has allowed the weighted deduction on charges paid to Export Promotion Council on the analogy that service charges to HHEC have been allowed in the past and no other reason has been given. To our mind this basis is not correct, because there is a direct nexus in respect of service charges to HHEC, whereas in export promotion services, no such nexus has been pointed out. Unless there is a direct nexus, it cannot be allowed. The matter of allowing weighted deduction specifically came up for consideration in the case of CIT vs. Navbharat Enterprises (P) Ltd. and the Hon'ble High Court has held that subscription to export promotion councils and trade associations cannot be allowed....

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....nditure under s. 37(1) of the IT Act, 1961. All hospitality extended for the purpose of business, whether lavish or frugal, would be covered by the expression, "expenditure in the nature of entertainment expenditure." 6.1 As against this the learned counsel for the assessee placed reliance on the decision of Special Bench of the Tribunal in the case of J. Hemchand & Co. vs. ITO reported in 1 SOT 150 and another Special Bench decision of the Tribunal in the case of ITO vs. Happy Sound Industries reported as 1 SOT 172. The learned counsel for the assessee pointed out that these expenses are allowable specifically under sub-cl. (i) and (iv) of sec. 35B of the IT Act. Similarly on travelling expenses it is submitted that it is allowable on the....

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....ightly allowed. 7.2 So far as the decision of Patna High Court is concerned that decisions was on the point, whether entertainment expenditure is allowable under s. 37 of the ITA or not. Sec. 37 speaks that any expenditure not being expenditure of the nature described in ss. 30 to 36 which mean that s. 35B is also one of those sections which have been excluded under s. 37. Therefore, ratio of Patna High Court decision is not applicable to the facts of the present case. Court decision is not applicable to the facts of the present case. 7.3 On the same analogy the travelling expenditure is also allowable. 8. The next grievance in Revenue's appeal is that the CIT(A) erred in directing to allow entertainment expenditure of New York Office an....