1956 (2) TMI 64 - HC - Income Tax

Summary

Issues Involved:
1. Whether the Income-tax Department is entitled to apply its mind to the question of reasonableness of the amount of expenditure claimed under section 10(2)(ix) of the Burma Income-tax Act.
2. Whether there was any evidence to justify the disallowance of a portion of the messing allowance claimed.

Issue-wise Detailed Analysis:

1. Reasonableness of Expenditure under Section 10(2)(ix):
The first issue revolves around whether the Income-tax Department can assess the reasonableness of the expenditure claimed under section 10(2)(ix) of the Burma Income-tax Act. The court observed that the Assistant Commissioner of Income-tax had accepted the deduction claimed by the assessee as admissible business expenditure under section 10(2)(ix). However, the question was whether, after accepting the expenditure, the Income-tax Department could question the reasonableness of the amount claimed.

The court noted that under the pre-amendment Burma Income-tax Act, the Commissioner of Income-tax could refer a case to the High Court and provide his opinion, but post-amendment, the Appellate Tribunal could only refer the case without providing its opinion. The Tribunal, in this case, had overstepped its statutory powers by giving its opinion.

The court referred to the relevant section of the Burma Income-tax Act, which states that profits or gains shall be computed after making allowances for any expenditure incurred solely for the purpose of earning such profits or gains. The Tribunal had accepted that the messing allowance fell under this section but questioned the reasonableness of the amount.

The court cited the Madras High Court decision in Newtone Studios Ltd. v. Commissioner of Income-tax, which held that the Income-tax authorities could not adopt a subjective standard of reasonableness once they had accepted the expenditure as genuine. The court concurred with this view, stating that the Income-tax authorities could not refix the amount based on their subjective standard of reasonableness once they accepted the expenditure as permissible under section 10(2)(ix).

The court concluded that there was no statutory provision in section 10(2)(ix) that allowed the Income-tax authorities to question the reasonableness of the expenditure after accepting it as permissible. Therefore, the answer to the first question was in the negative.

2. Evidence for Disallowance of Messing Allowance:
Given the court's answer to the first question, the second issue of whether there was any evidence to justify the disallowance of a portion of the messing allowance did not arise. The court noted that the Income-tax authorities had accepted the expenditure as genuine, and thus, the question of disallowance based on reasonableness was moot.

Conclusion:
The court held that the Income-tax Department is not entitled to apply its mind to the question of the reasonableness of the amount of expenditure claimed under section 10(2)(ix) of the Burma Income-tax Act once it has accepted the expenditure as permissible. Consequently, the second question regarding the evidence for disallowance did not arise. The assessee was entitled to costs of the reference, with an advocate's fee of K. 150.