1992 (7) TMI 5 - HC - Income Tax

Assessment Proceedings, Assessment Year, Fact By Tribunal, Question Of Law, Reassessment Proceedings

Summary

Issues:
1. Deductibility of legal charges under section 37 of the Income-tax Act, 1961.
2. Applicability of section 80VV to remuneration paid to a director.
3. Allowability of expenditure on presentation of wrist watches to employees.

Analysis:

Issue 1:
The first issue pertains to the deductibility of legal charges paid for obtaining advice on dilution of shareholding under the Foreign Exchange Regulation Act, 1973. The Income-tax Officer and the Appellate Assistant Commissioner disallowed the claim, but the Tribunal allowed it as a revenue expenditure under section 37. However, the High Court, relying on a previous decision, held that such expenditure, regardless of the legal requirement, was for augmenting the capital base and thus of a capital nature, not allowable as a deduction under section 37. Consequently, the court answered the first question in the negative and in favor of the Revenue.

Issue 2:
The second issue concerns the remuneration paid to a director for professional services and whether it falls under the purview of section 80VV. The Income-tax Officer disallowed a portion of the remuneration under section 80VV, but the Tribunal allowed the entire claim. The Tribunal reasoned that section 80VV does not restrict the allowance for general advice on taxation matters and found no merit in the disallowance. The High Court concurred with the Tribunal's findings, emphasizing that the remuneration was paid for general advice, not specific proceedings under the Income-tax Act. Therefore, the court answered the second question in the affirmative and in favor of the assessee.

Issue 3:
The final issue revolves around the expenditure on presenting wrist watches to employees and its deductibility. The Income-tax Officer and the Commissioner of Income-tax (Appeals) disallowed the claim, contending that it did not serve the welfare of employees or the business purpose. However, the Tribunal allowed the claim, noting that the presentation of watches aimed to encourage punctuality, maintain good relations, and earn goodwill. The High Court upheld the Tribunal's decision, emphasizing that the expenditure was wholly and exclusively for the business purpose, as it incentivized employees and fostered goodwill. Therefore, the court answered the third question in the negative and in favor of the assessee.

In conclusion, the High Court ruled in favor of the Revenue for the first issue but in favor of the assessee for the second and third issues. The judgment provides clarity on the deductibility of various expenditures under the Income-tax Act, 1961, based on the nature and purpose of the expenses incurred.