2007 (5) TMI 177 - HC - Income Tax

Business Expenditure Tribunal rejected the assessee (a newspaper publisher) claim of deduction of the amount of expenditure on taxi hire charges for delivering newspaper on the ground of expenditure unnecessary to the business HC affirmed the tribunal order

Summary

Issues:
Interpretation of Section 37(3B) for expenditure on hiring cars.

Analysis:
The judgment involves a question regarding the interpretation of Section 37(3B) in relation to the expenditure on hiring cars. The Tribunal had to determine whether the expenditure on hiring cars by a newspaper publisher for delivering newspapers falls within the purview of Section 37(3B) for the purposes of a 10% disallowance.

The provisions of Section 37 were discussed, specifically focusing on sub-sections (3A) and (3B) along with Explanation (c). These provisions were initially inserted to curb extravagant expenditures on various items like advertisement, publicity, running and maintenance of aircraft, motor cars, and payments to hotels. Under sub-section (3A), if the expenditure on specified items exceeded a certain limit, only a portion of the excess amount could be deducted by the assessee.

Explanation (c) clarified that expenditure on the running and maintenance of motor cars includes expenses incurred on hiring cars for hire. In this case, the assessee, a newspaper publisher, sought a deduction for taxi hire charges for delivering newspapers. The Tribunal held that this expenditure was necessary for the business and not hit by sub-section (3A) as it was incidental to the business.

However, the High Court disagreed with the Tribunal's decision. It emphasized that only necessary business expenditures could be allowed as deductions. The Court highlighted that if the hired vehicles were passenger vehicles and not goods vehicles, the expenditure would fall within the scope of Section 37(3B), leading to a disallowance.

The Court rejected the assessee's claim that the vehicles hired were goods vehicles, stating that the term "taxi" specifically refers to passenger vehicles, not goods vehicles. Consequently, the Court ruled in favor of the department and against the assessee, concluding that the expenditure on hiring cars for distributing newspapers was subject to the 10% disallowance under Section 37(3B).

In conclusion, the High Court disposed of the reference by answering the question in favor of the department, highlighting the importance of distinguishing between passenger and goods vehicles when determining the applicability of Section 37(3B) to expenditure on hiring cars for business purposes.