2014 (8) TMI 123 - HC - Income Tax

Disallowance u/s 40A(8) borrowings were taken for the purpose of payment of tax - Held that - Following the decision in Hindustan Cocoa Products Ltd. v/s Commissioner of Income Tax, reported in 1998 (11) TMI 115 - BOMBAY High Court - the benefit of section 80V would be available to the Assessee if the borrowings were taken for the purpose of payment of tax - the deposits were primarily taken for the payment of taxes Decided against Revenue. Interpretation of Rule 6D Re-computation of disallowance expenditure incurred by the Assessee in connection with the travel of an employee - Held that - Following the decision in Commissioner of Income Tax v/s AOROW India Ltd., reported in 1997 (7) TMI 92 - BOMBAY High Court - the Assessee had incurred certain expenditure in connection with the travel of its employees including hotel expenses and allowance ITO computed the disallowance out of expenditure u/s 37(3) of the Act r.w Rule 6D - the ITO took into account the total expenditure incurred by each employee in each trip undertaken by him - CIT (A) held that the disallowance under Rule 6D should be worked out by taking into consideration all the trips undertaken by the employee during the year together and not on the basis of each trip Decided in favour of Revenue.

Summary

Issues:
1. Deduction under section 80V of the Income Tax Act 1961.
2. Interpretation of Rule 6D of the Income Tax Rules, 1962 regarding employee travel expenditure.

Analysis:

Issue 1: Deduction under section 80V of the Income Tax Act 1961:
The case involved a dispute regarding the deduction of interest paid on deposits under section 80V of the Income Tax Act. The Assessing Officer disallowed 15% of the interest paid under section 40A(8) of the Act. However, the CIT (Appeals) allowed the deduction under section 80V, which was upheld by the Tribunal. The court referred to a previous judgment in Hindustan Cocoa Products Ltd. v/s Commissioner of Income Tax, where it was held that the benefit of section 80V is available if borrowings were for tax payment purposes. As the deposits were primarily for tax payments, the court ruled in favor of the Assessee, answering Question (A) in the affirmative against the Revenue.

Issue 2: Interpretation of Rule 6D of the Income Tax Rules, 1962 regarding employee travel expenditure:
The second issue revolved around the interpretation of Rule 6D of the Income Tax Rules, 1962 concerning the computation of disallowance for employee travel expenditure. The CIT (Appeals) directed the Assessing Officer to recompute the disallowance based on aggregate trips of each employee, not each trip separately. This direction was confirmed by the Tribunal. The court referred to a previous judgment in Commissioner of Income Tax v/s AOROW India Ltd., where it was held that disallowance under Rule 6D should be based on total expenditure incurred by an employee throughout the year, not separately for each trip. Following this precedent, the court answered Question (B) in the negative, in favor of the Revenue and against the Assessee.

In conclusion, both issues were resolved based on previous judgments and interpretations of relevant sections and rules, leading to a decision in favor of the Assessee for the first issue and in favor of the Revenue for the second issue. The reference was disposed of with no order as to costs.