1993 (9) TMI 16 - HC - Income Tax

Advance Tax, Appeal To AAC, Business Expenditure, Entertainment Expenditure, Expenditure Incurred, Interest On Borrowed Capital, Law Applicable To Assessment, Medical Expenses

Summary

Issues:
1. Allowability of entertainment expenditure outside India under section 37(2A) of the Income-tax Act, 1961.
2. Appeal against levy of interest under section 215 of the Income-tax Act, 1961.
3. Treatment of reimbursement of medical expenses under section 40A(5) of the Income-tax Act.
4. Allowability of interest on loans borrowed for advancing to subsidiary company under section 36(1)(iii) of the Income-tax Act.

Analysis:

Issue 1:
The court deliberated on the allowability of entertainment expenditure outside India under section 37(2A) of the Income-tax Act, 1961. The assessee contended that the ceiling prescribed by section 37(2A) did not apply to entertainment expenditure incurred outside India. However, the court emphasized that section 37(2A) imposes a ceiling on entertainment expenditure regardless of where it is incurred. The insertion of sub-section (2B) in the Act restricted the allowance of entertainment expenditure incurred within India after a specified date. The court held that section 37(2A) operates independently of other provisions and applies to entertainment expenditure both within and outside India. Therefore, the court ruled in favor of the Revenue, affirming the Tribunal's decision.

Issue 2:
The court addressed the question of whether an appeal lies against the levy of interest under section 215 of the Income-tax Act, 1961. Citing a previous decision, the court concluded that an appeal does not lie against such levy, ruling in favor of the assessee based on the precedent.

Issue 3:
Regarding the treatment of reimbursement of medical expenses under section 40A(5) of the Income-tax Act, the court referred to a previous decision in favor of the assessee. It was established that reimbursement of medical expenses is considered part of salary and not perquisites for the purpose of disallowance under the said section, leading to a ruling in favor of the assessee.

Issue 4:
The court examined the allowability of interest on loans borrowed for advancing to a subsidiary company under section 36(1)(iii) of the Income-tax Act. Referring to a decision in the assessee's own case, the court ruled in favor of the Revenue, stating that the interest on such loans was allowable under the specified section.

In conclusion, the court provided detailed analyses and rulings on each issue raised in the reference, aligning with relevant legal provisions and precedents.