1987 (9) TMI 6 - HC - Income Tax

Summary

Issues involved: The judgment involves the following issues:
1. Allowability of expenses incurred on providing meals, breakfast, and tea to customers and suppliers as entertainment expenses.
2. Treatment of a sum spent on obtaining a survey and feasibility report for a polythene plant as capital expenditure.
3. Allowability of surtax liability as a business expenditure.

Issue 1 - Entertainment Expenses:
The Tribunal held that expenses incurred by the assessee in providing meals, breakfast, and tea to customers and suppliers were in the nature of entertainment expenses and not allowable under section 37(2B) of the Income-tax Act, 1961. This decision was based on the precedent set in a previous case. The High Court upheld this decision and answered question No. 1 in favor of the assessee, allowing the expenses as a deduction.

Issue 2 - Capital Expenditure:
The assessee claimed a deduction of Rs. 90,000 spent on obtaining a survey and feasibility report for a polythene plant, arguing it was incurred wholly and exclusively for the purpose of its business. However, the claim was disallowed by the lower authorities and the Tribunal. The High Court noted that the necessary facts to determine the allowability of this expenditure had not been established by the lower authorities. Referring to legal principles laid down by the Supreme Court, the High Court emphasized the need to establish whether the proposed polythene plant was interconnected with the existing textile business. Since the facts were not determined, the High Court concluded that this question could not be answered at that stage.

Issue 3 - Surtax Liability:
Regarding the surtax liability, the Tribunal's decision not to allow it as a business expenditure was upheld by the High Court. The Court held that the surtax liability is not a permissible deduction for income tax purposes. Therefore, question No. 3 was answered in favor of the Revenue and against the assessee.

In conclusion, the High Court answered the questions as follows:
- Question No. 1: Answered in favor of the assessee, allowing the expenses incurred on providing snacks as a deduction.
- Question No. 2: Did not arise for a decision due to lack of necessary facts.
- Question No. 3: Answered in favor of the Revenue, confirming that surtax liability is not an allowable deduction. No costs were awarded in this matter.