1984 (6) TMI 35 - HC - Income Tax

Business Expenditure, Circulars, Company, Employee Or Any Other Person, Managing Director Or Director, Travelling Expenses

Summary

Issues:
1. Interpretation of Rule 6D of the Income Tax Rules, 1962 regarding the exemption of travelling expenses incurred by the managing director.
2. Applicability of Circular No. 2(44)-CL-VII/74 issued by the Ministry of Law, Justice, and Company Affairs in relation to the Income Tax Act and Rules.

Analysis:
The court was tasked with determining whether the travelling expenses incurred by the managing director of the assessee company were exempt from the purview of Rule 6D of the Income Tax Rules, 1962, in light of Circular No. 2(44)-CL-VII/74 issued by the Ministry of Law, Justice, and Company Affairs. The Tribunal only referred one question for consideration, focusing on the applicability of the rule to the managing director's expenses. Despite the Department's request for additional questions to be referred, the Tribunal chose to limit the scope. The court proceeded to address the singular question at hand due to the lack of information on any application under section 256(2) regarding the refusal to refer other questions.

The case revolved around the interpretation of Rule 6D of the Income Tax Rules, 1962, which places a ceiling on travelling expenses incurred by employees or any other person for business purposes. The Income Tax Officer (ITO) disallowed certain amounts claimed by the assessee company for exceeding the prescribed ceiling. However, the Appellate Authority Commissioner (AAC) allowed the full amount based on a previous Tribunal decision that suggested the rule did not cover travelling expenses of directors. The Tribunal upheld the AAC's decision, leading to the current dispute regarding the managing director's expenses. The court emphasized that the term "any other person" in the rule encompassed managing directors, affirming the ITO's disallowance of excessive expenses and criticizing the AAC and Tribunal for their contrary interpretation.

Regarding the reliance on Circular No. 2(44)-CL-VII/74 by the Tribunal to justify the deduction of travelling expenses, the court dismissed its significance. The circular, issued by the Ministry of Law, Justice, and Company Affairs, lacked statutory authority under the Income Tax Act or Rules, rendering it inconsequential in overriding or qualifying statutory provisions. Drawing a distinction between circulars from different ministries, the court highlighted that only circulars from the Central Board of Direct Taxes, issued under specific statutory provisions, could impact tax administration. Citing a precedent from the High Court of Calcutta, the court emphasized that circulars lacking statutory backing could not influence tax authorities' decisions. Consequently, the court ruled against the assessee, favoring the Revenue, and disregarded the circular's relevance in the case.

In conclusion, the court's judgment clarified the application of Rule 6D to managing directors' travelling expenses, emphasizing the rule's broad scope to encompass such individuals. Additionally, the court underscored the limited impact of circulars lacking statutory authority, reaffirming the primacy of statutory provisions in tax matters.