TaxTMI 
TaxTMI 
2013 (8) TMI 242
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....see under the Income Tax Act, 1961 (hereinafter referred to as 'the Act'), and falls within the jurisdiction of the appellant herein. During the year 2002-2003, while filing return of income, the respondent company claimed a sum of Rs. 53,97,556/- as Foreign Travel Expenses, in respect of the travel trips to foreign countries undertaken by its Directors and Executives in connection with promotion of sale of their products. The respondent company also claimed a sum of Rs. 46,54,687/- as 100% depreciation on the expenditure incurred in connection with erection of fencing at their tea garden, another sum of Rs. 20,31,129/- as expenditure incurred in connection with publicity, Rs. 1,00,000/- as expenditure incurred on subscription made by the respondent company during Bihu and Puja, 100% depreciation on certain Vibro Fluid Bed Dryers, an amount of Rs. 3,01,94,000/- as cess on green leaf. The respondent company had also claimed deduction under Section 80HHC of the Act. (ii) While assessing the tax payable by the respondent company, the Assessing Officer interfered with various claims of deduction, which the respondent company had made. The deductions, which were disallow....
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....d. (d) As against the claim of 100% depreciation on Vibro Fluid Bed Drayer, the Assessing Officer disallowed 100% depreciation and held that the respondent company was entitled to only 25% depreciation. (e) The Assessing Officer disallowed the respondent company's claim of Rs. 1,00,000/-, as subscription expenditure, on the ground that the expenses were non-trading in nature. (f) As regards the respondent company's claim of Rs. 3,01,94,000/-, as cess on green leaf, the Assessing Officer rejected the respondent company's claim and observed that in view of the judgement of this High Court, in Jorehat Group Limited vs. Agri. ITO, reported in 226 IT 622, the amount of cess paid is to be deducted from 60% of the composite agricultural income. (g) As regards the respondent company's claim for deduction under Section 80HHC of the Income Tax Act, the Assessing Officer observed that while claiming the amount of deduction, the respondent company had not deducted commission, brokerage, selling and other expenses, which was to the tune of Rs. 7,47,26,773/-, and rejected the claim of the respondent company for deduction under Secti....
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....ny's claim of Rs. 3,01,94,000/-, as cess on green leaf, the Commissioner rejected the claim of the respondent company. (g) That as regards the respondent company's claim for deduction under Section 80HHC of the Act, the Commissioner allowed the respondent company's claim for deduction under Section 80HHC. 3. Still dissatisfied by the order, dated 01.09.2006, passed by the Commissioner of Income Tax (Appeals), the respondent company preferred two appeals before the Income Tax Appellate Tribunal, Gauhati Bench (hereinafter referred to as 'the Tribunal'), at Guwahati. The said two appeals came to be registered as ITA No. 109/2006 and ITA No. 129/2007. 4. By order, dated 31.08.2007, the learned Tribunal has partly allowed the two appeals. While considering the respondent company's grievance against rejection of their claim of Rs. 32,75,872/- as Foreign Travel Expenses, the learned Tribunal disagreed with the findings of the Commissioner of Income Tax (Appeals), whereby the entire Foreign Travel Expenses of Directors were disallowed, and held that, out of the said claimed amount of Rs. 32,75,872/, only an amount of Rs. 3,85,217/- was not incurred for business purpo....
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....oming to this conclusion, the learned Tribunal has relied upon the case of Assam Brooke Ltd. vs. CIT (267 ITR 121), wherein the assessee had paid Rs. 5,00,000/- towards renovation of a building of the club of which the employees of the assessee were members and the Calcutta High Court held the amount to be a business expenditure. 7. While dealing with the respondent company's grievance against the Assessing Officer as well as the Commissioner of Income Tax (Appeals) rejecting the respondent company's claim of Rs. 3,01,94,000/-, as cess on green leaf, the learned Tribunal decided the issue in favour of the respondent company and allowed deduction for cess paid on green leaf in computing income from growing and manufacturing of tea before applying Rule 8 of the Income Tax Rules, 1962. While coming to this conclusion, the learned Tribunal relied upon the decision of the Gauhati High Court, in Assam Co. Ltd. vs. CIT (275 ITR 609) and Jorahaut Group Ltd. Vs. ACIT (289 ITR 422). 8. Being aggrieved by the order of the learned Tribunal, particularly, learned Tribunal's deletion of the disallowance of Rs. 28,90,655/-, on account of Foreign Travel Expenses, as had been disallowed by th....
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....ss. In the instant case, contends Mr. Joshi, the respondent company had not produced evidence in support of its claim that the expenditure, claimed on account of Foreign Trips, was wholly and exclusively for business purpose, though it was incumbent, on the part of the respondent company, to give details as to what the representatives of the company did in the foreign countries for the business of the respondent company. 12. In support of his contention, Mr. Joshi has relied upon the decision of the Supreme Court, in Bengal Enamel Works Ltd. Vs CIT (77 ITR 119), wherein the Supreme Court has held that the taxing authorities may disallow an expenditure claimed on the ground that the payment was not made or was not incurred by the assessee for its business or it was not laid out wholly and exclusively in the business for the assessee. The Supreme Court has further held that, in doing so, the authority does not substitute its own view of how an assesse's business affairs should be maintained and proceed to disallow the expenditure if the condition of its admissibility is absent. 13. Ms. Nitu Hawelia, learned counsel, appearing for the respondent company, contends that the respon....
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....pany in the earlier years, which were allowed by the Commissioner of Income Tax (Appeals), and the same were accepted by the Department concerned. Since, in the previous years, similar expenses were allowed, the department cannot, submits Ms. Hawelia, take a different view of the matter, on the same issue, at a latter stage. 15. As regards the disallowance on account of publicity expenses, Ms. Hawelia, learned counsel for the respondent company, submits that so long as the expenditure incurred is not for oblique purposes, outside the course of business, or for some improper motives, the authorities should shun a bureaucratic approach and should examine the issue from the point of view of businessman and not from the point of view of revenue. In support of her contention, learned counsel for the respondent company has relied on a decision of this Court, in India Trading Corporation vs. Commissioner of Income Tax, reported in (1995) 1 GLR 330. Ms. Hawelia has further relied on a decision of the Calcutta High Court in Assam Brook Ltd. vs. Commissioner of Income Tax, reported in 267 ITR 121, wherein the payment made to a club for renovation of the club was held to be in the interest....
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....Insulated & Helsby Cables Ltd., (1925) 10 TC 155, 191(HL), observed "... a sum of money expended, not of necessity and with a view to direct and immediate benefit to the trade, but voluntarily and on the ground of commercial expediency and in order indirectly to facilitate the carrying on of the business, may yet be expended wholly and exclusively for the purpose of trade". The same test was applied in Cooke vs. Quick Shoe Repair Service, (1949) 30 Tax Case 460. 17. What necessarily follows from the above discussion is that when an expenditure is claimed to have been incurred by an assessee for promotion of his business, there is no legal obligation imposed on the assessee to prove that the expenditure was necessary for promotion of his business. So long as the expenditure is incurred by an assessee for promotion of sale of product, the assessee is entitled, under Section 37(1) of the Act, to claim exemption from tax on such amount of expenditure. 18. The tests, referred to above, were quoted in Eastern Investments Ltd. vs. CIT, (1951) 20 ITR 1, 4 (SC), wherein the following principles were laid down: (a) Though the question must be decided on the ....
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....he assessee to make the payment, but the correct test is that of commercial expediency. As long as the payment, which is made for the purposes of the business and not by way of penalty for infraction of any law, the same would be allowable as deduction. The commercial expediency of a businessman's decision to incur an expenditure cannot be tested on the touchstone of strict legal liability to incur such an expenditure. Such decisions have to be taken from a businessman's point of view and have to be respected by the authorities even if it appears to the latter that the expenditure incurred was unnecessary and avoidable. As such, a businessman is the best judge to determine the business expediency and the fact as to whether a particular expenditure is a revenue expenditure, incurred for the purpose of business, must be determined on consideration of all facts and circumstances as well as by application of principles of commercial trading. The correct approach would be to see whether the payment, under consideration, was made on grounds of commercial expediency for ultimate benefit of business or not. 20. For the allowability of an expenditure under Section 37 of the Act, it is no....
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....gardens. The garden managers visited U. K. and Kenya for business purposes. Visits to U. K. were necessary as the respondent company exported its tea to London for sale in the European market. The garden managers visited UK also to meet foreign customers and selling agents to promote the respondent company's exports. Visits to Kenya by the Directors/ Executives/Managers were necessary, because the said country is the largest exporter of tea in the world. The respondent company had sent its senior garden Manager for conducting study on Kenyan tea manufacturers so that the respondent company survives in the international competition in tea export. Under such circumstances, the finding of the learned Income Tax Appellate Tribunal that the expenditure, on the visits by the garden managers, was wholly and exclusively for business purposes cannot be said to be suffering from any illegality and infirmity. 22. Keeping in mind the rival submissions made before us, let us, now, revert to the fact that the Commissioner of Income Tax (Appeals) enhanced the disallowance on the ground that the visits of the tea estate managers to foreign countries cannot be said to be for the purpose of busin....
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....ton College at Guwahati. The respondent company paid Rs. 2,00,000/- for sponsoring the State Level National Children Science Congress in Assam. The disallowance of Rs. 9,00,000/- was on the ground that the above mentioned expenditures were for non-business purposes and it was, rather, in the nature of donation. 25. While considering the above aspect of the appeal, it needs to be borne in mind that it was submitted, before the learned Tribunal, that the Managing Director of the respondent company was a member of the Bengal Club and he had spent Rs. 5,00,000/- for sponsoring the programmes of the club. Sponsoring of a programme of the nature aforesaid, obviously, leads to advertisement and wider acknowledgement of the respondent company and its products. Such an expenditure cannot but be regarded as having been incurred for the purpose of augmentation of income of the respondent company. In short, the said sum of Rs. 5,00,000/- ought to have been allowed as an expenditure incurred in the interest of the business of the respondent company. The expenditure, incurred in connection with sponsoring of the Centenary celebrations of Cotton College, at Guwahati, by Anand Bazar Patrika Ltd....