1978 (4) TMI 108 - AT - Income Tax

Summary

Issues:
1. Taxability of Dharmada collection in the hands of the assessee.
2. Disallowance of shop expenses by the Income-tax Officer.

Analysis:

Issue 1: Taxability of Dharmada collection
The appeal pertains to the assessment year 1975-76, where the Revenue challenged the order of the AAC regarding the taxability of Dharmada collection in the hands of the assessee, a registered firm engaged in jaggery business on a commission basis. The ITO had added Rs. 4,174 towards Dharmada collection to the total income of the assessee. The AAC, relying on precedents from the Allahabad High Court and Tribunal decisions, held that Dharmada collection was held as a trust for charitable purposes and thus not taxable. The Revenue contended whether the collections made by the assessee were taxable as income. The Tribunal observed that the assessee maintained a separate Dharmada account in its books, where collections were credited and amounts spent for charities were debited. Citing a full Bench decision of the Allahabad High Court, the Tribunal emphasized that if the income was received under a custom for charitable purposes, it did not constitute taxable income. The Tribunal upheld the AAC's decision based on the principles established by previous court judgments, concluding that the Dharmada collection was not exigible to tax as income in the hands of the assessee.

Issue 2: Disallowance of shop expenses
Another contention in the appeal was the disallowance of a portion of shop expenses by the Income-tax Officer, without providing reasons. The AAC allowed a reduction of Rs. 1,800 out of Rs. 2,200 disallowed by the ITO from the total claim of Rs. 6,158 made by the assessee as shop expenses. The AAC found that the expenditure was towards providing messing and tea to customers, constituents, and staff, not constituting entertainment expenses under the Income Tax Act. Relying on a Gujarat High Court decision, the AAC restricted the disallowance to Rs. 400 for personal expenses incurred by the partners. The Revenue appealed this decision. The Tribunal, after reviewing the facts and legal precedents, declined to interfere with the AAC's decision. It held that the expenditure was for customary hospitality towards customers and staff, aligning with the principles laid down by the Gujarat High Court, and therefore not categorized as entertainment expenses under the Act. Consequently, the Tribunal dismissed the appeal, upholding the AAC's decision regarding the disallowance of shop expenses.

In conclusion, the Tribunal ruled in favor of the assessee on both issues, determining that the Dharmada collection was not taxable income and that the shop expenses were allowable as per the principles established by court judgments and legal provisions.