1988 (4) TMI 8 - HC - Income Tax

Summary

Issues Involved:
1. Allowability of guest house maintenance expenses.
2. Deduction of liability on account of additional excise duty.
3. Deduction of liability on account of additional sales tax.
4. Admission of additional ground of appeal for additional claim.
5. Deduction of expenses on food, refreshment, etc.

Issue-wise Detailed Analysis:

1. Allowability of Guest House Maintenance Expenses:
The applications raised the question of whether the Income-tax Appellate Tribunal was correct in allowing the expenses incurred for the maintenance of a guest house as business expenditure. The court noted that similar questions for the assessment years 1976-77, 1977-78, and 1978-79 were already directed to be referred to the court by an earlier order dated April 8, 1987. Consequently, it was clarified that no separate reference is being directed for the guest house expenses in the current applications, as they are covered by the earlier order.

2. Deduction of Liability on Account of Additional Excise Duty:
The applications questioned whether the Tribunal was correct in allowing deductions for additional excise duty liabilities. The court observed that the Tribunal upheld the Commissioner (Appeals)'s decision, which allowed the deduction based on the view that the additional excise duty was not a penalty but a legitimate business expense. The Tribunal found that the assessee maintained accounts on a mercantile basis and that the additional demand was received in the relevant previous year. The court noted a conflict in High Court decisions on this matter and directed the Tribunal to state the case and refer it to the High Court for its opinion.

3. Deduction of Liability on Account of Additional Sales Tax:
The question of additional sales tax liability was raised only for the assessment year 1977-78. The Tribunal allowed the deduction, aligning it with the additional excise duty liability. The court highlighted that the nature of additional excise duty and sales tax liabilities depends on the provisions of law and that these were not considered in earlier decisions by the Delhi and Madras High Courts. Thus, the court directed the Tribunal to refer this question to the High Court as well.

4. Admission of Additional Ground of Appeal for Additional Claim:
In Income-tax Case No. 215 of 1986, the issue was whether the Tribunal was correct in admitting an additional ground of appeal for an additional claim of Rs. 1,77,167. The court directed the Tribunal to state the case and refer the question to the High Court, noting that a similar question for the assessment year 1977-78 had already been referred by an earlier order.

5. Deduction of Expenses on Food, Refreshment, etc.:
The issue of deducting expenses on food, refreshment, etc., was raised for the assessment year 1976-77 in Income-tax Case No. 215 of 1986. The court directed the Tribunal to state the case and refer this question to the High Court, consistent with its earlier order for a similar question in another case.

Conclusion:
The court rejected I.T.C. No. 214 of 1986 and allowed the other applications, directing the Tribunal to draw up a composite statement of the case for the relevant assessment years and refer it to the High Court for its opinion on the specified questions of law. The parties were left to bear their respective costs.