1990 (5) TMI 37 - HC - Income Tax

Summary

Issues:
1. Whether the linking of two sets of transactions is permissible under law?
2. Whether the disallowance of expenditure for providing accommodation to directors and letting out own accommodation was legally correct?
3. Whether any disallowance was justified for legal expenses?
4. Whether the subsidy received for machinery can be deducted from the cost for investment allowance?

Analysis:

Issue 1 & 2:
The case involved the assessee, a private limited company, providing hired residential accommodation to its directors while letting out its own accommodation to others. The excess amount spent on accommodation was disallowed by the Assessing Officer and upheld by the Income-tax Appellate Tribunal. The court observed that determining if an expenditure is for business purposes is a question of fact. The court found that the Tribunal's decision was based on an appreciation of facts and law, and no defects were identified. Thus, questions 1 and 2 were deemed as pure questions of fact and not fit for reference under section 256 of the Income-tax Act.

Issue 3:
Regarding the disallowance of legal expenses, the Assessing Officer disallowed a portion of the expenses based on section 80VV of the Act. The first appellate authority allowed a deduction, which was further upheld by the Tribunal. The court rejected the argument that the disallowance could be considered a permissible deduction under section 37(1) of the Act. The court noted that the argument was not raised before the Tribunal and that the expenditure covered by section 80VV was excluded from section 37(1). Therefore, the court rejected the reference for question 3.

Issue 4:
The assessee claimed investment allowance for machinery, including a generator. The Assessing Officer reduced the cost of the generator by the subsidy received from the Government. The first appellate authority disagreed, but the Tribunal restored the Assessing Officer's view. The court found that question 4 was a legal issue arising from the Tribunal's order. Therefore, the court directed the Tribunal to draw up a statement of the case for question 4 and refer it for the court's opinion.

In conclusion, the court partially allowed the application, directing the Tribunal to refer question 4 while rejecting the references for questions 1, 2, and 3.