1993 (8) TMI 103 - AT - Income Tax

Summary

Issues Involved:
1. Technical default in terms of r. 45 of the IT Rules.
2. Exclusion of reimbursement of club fees from disallowance u/s 40(C)/40A(5).
3. Recompute disallowance u/r 6D.
4. Expenditure incurred towards the issue of bonus shares as revenue expenditure.
5. Subscription to club as allowable expenditure u/s 37(1).
6. Deduction u/s 80G for payment made to Manipal Institute of Technology Trust.

Summary of Judgment:

1. Technical Default in Terms of r. 45 of the IT Rules:
The issue was whether the CIT(A) erred in ignoring the technical default regarding the signing of the appeal memo. The Tribunal noted that the memo was initially signed by a director instead of the managing director, which was later corrected. Citing the case of Hari lelas vs. First ITO, the Tribunal held that such a defect is curable and not fatal. Thus, the CIT(A) was justified in entertaining the appeal, and this ground of appeal was rejected.

2. Exclusion of Reimbursement of Club Fees from Disallowance u/s 40(C)/40A(5):
The CIT(A) directed the exclusion of club membership fees from the computation of disallowance u/s 40(C)/40A(5). The Tribunal upheld this decision, referencing the Bombay High Court's ruling in CIT vs. Otis Elevator Co. (India) Ltd., which stated that club membership should not be included in perquisites for disallowance purposes. This ground of appeal was rejected.

3. Recompute Disallowance u/r 6D:
The CIT(A) directed the Assessing Officer to recompute disallowance u/r 6D by considering all trips in respect of each employee rather than on an individual trip basis. The Tribunal followed its earlier decision in S.V. Ghatalia vs. Second ITO, which supported the assessee's stance. Consequently, this ground of appeal was rejected.

4. Expenditure Incurred Towards the Issue of Bonus Shares as Revenue Expenditure:
The CIT(A) allowed the expenditure of Rs. 57,940 towards the issue of bonus shares as revenue expenditure. The Tribunal found that the fees were paid for a report on the valuation of shares of Patel Filters Ltd., which was a trade investment. However, the Tribunal reversed the CIT(A)'s decision, holding that the expenditure was capital in nature, referencing the case of Rajasthan Construction Co. Pvt. Ltd. This ground of appeal was allowed.

5. Subscription to Club as Allowable Expenditure u/s 37(1):
The CIT(A) allowed the subscription to the club as a business expenditure u/s 37(1). The Tribunal saw no reason to interfere with this decision, and this ground of appeal was rejected.

6. Deduction u/s 80G for Payment Made to Manipal Institute of Technology Trust:
The CIT(A) allowed the deduction u/s 80G for a payment of Rs. 1,00,000 to Manipal Institute of Technology Trust. The Tribunal, however, found that the payment did not qualify as a "donation" since it was made with an expectation of material return, such as nominating students for admission. Citing the Supreme Court's explanation in Commr. of Expenditure-tax vs. P.V.G. Raju, the Tribunal concluded that the payment was a grant for quid pro quo and not a donation. Thus, this ground of appeal was allowed, and the assessee was not entitled to the benefit u/s 80G.

Conclusion:
The Department's appeal was partly allowed, with specific grounds being upheld or rejected based on the merits and relevant case law precedents.