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Issues involved:
The interpretation of section 37(3) of the Income-tax Act and rule 6D of the Income-tax Rules regarding expenses incurred by an assessee on account of its employees attending to its business from outside its headquarters. Summary: In this income-tax reference case, the Appellate Tribunal declined to refer the first question required by the appellant-assessee but referred the second question regarding the expenses incurred by employees under section 37(3) of the Act read with rule 6D of the Income-tax Rules. The assessee, a manufacturing company in Bangalore, claimed expenses under rule 6D and section 37(3) for travelling and stay of its employees and directors away from headquarters. The assessing authority added back the claimed amount, considering both directors and employees covered under rule 6D. The appellate authorities upheld this decision, leading to an appeal before the Income-tax Appellate Tribunal. The Tribunal rejected the contention that directors or employees were entitled to full cost of stay even on days when no work was done during travel. It distinguished a decision of the Delhi Bench and emphasized that only circulars issued by authorized authorities under section 119 of the Act are binding. Referring to a decision of the Kerala High Court, the Tribunal held that stay connected to travel for company work outside headquarters, regardless of work done on a particular day, is allowable. The stay was deemed to be in connection with the work undertaken, leading to the conclusion that the expenses were justified under section 37(3) and rule 6D. Ultimately, the High Court answered the question in the affirmative and in favor of the Revenue, aligning with the Tribunal's reasoning that the expenses incurred on stay during travel for company work outside headquarters are allowable under section 37(3) and rule 6D.
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