1998 (2) TMI 40 - HC - Income Tax

Summary

Issues involved:
1. Admissibility of surtax paid as deduction in computing total income under Income-tax Act, 1961.
2. Applicability of provisions of section 37(2B) of the Income-tax Act, 1961 to expenditure incurred in the assessment year 1979-80.
3. Allowability of expenditure incurred by the assessee for advertisement in the souvenir published by the Indian National Congress in computing income for the assessment year 1979-80.

Admissibility of Surtax Paid:
The judgment refers to a recent decision of the Supreme Court in the case of Smith Kline and French (India) Ltd. v. CIT [1996] 219 ITR 581, where it was held that surtax levied under the Companies (Profits) Surtax Act, 1964 cannot be allowed as a deduction while computing business income under the Income-tax Act. Therefore, the surtax paid by the assessee is not admissible as a deduction.

Applicability of Section 37(2B):
The Tribunal initially held that the provisions of section 37(2B) of the Income-tax Act, 1961 did not apply to the expenditure incurred in the previous year relevant to the assessment year 1979-80. However, the High Court disagreed, stating that the law applicable for the allowability of expenditure incurred in the previous year relevant for the assessment year is the law in force on the first day of April of the assessment year. As section 37(2B) came into full force on April 1, 1979, it should apply, making the expenditure incurred by the assessee not allowable as a business expenditure for the year 1979-80.

Allowability of Advertisement Expenditure:
The High Court concluded that the expenditure incurred by the assessee for advertisement in the souvenir published by the Indian National Congress is not allowable as a deduction in computing income for the assessment year 1979-80. The amendment of law did not indicate any contrary intention, making it applicable to the expenditure in question. Therefore, the Tribunal's decision that the provisions of section 37(2B) did not apply to this expenditure was deemed incorrect.

Conclusion:
The High Court answered all questions of law in favor of the Department and against the assessee, based on the interpretations of relevant legal provisions and precedents.