1983 (9) TMI 119 - AT - Income Tax

Summary

Issues:
1. Claim of relief under section 35B of the Income Tax Act.
2. Eligibility for relief under section 35B based on the nature of business activities.
3. Disallowance of depreciation on a motor car.
4. Treatment of expenses as entertainment or gifts.

Detailed Analysis:

1. The appeal involved the department's challenge to the claim of relief under section 35B of the Income Tax Act by the assessee, a limited company engaged in brokerage business. The assessee sought relief on expenses incurred to earn brokerage income. The Income Tax Officer (ITO) initially disallowed the claim, citing that most brokerage was received from Indian parties. The assessee contended that its role as a broker facilitated Indian exports, justifying eligibility for relief under section 35B(b)(ii). The Commissioner of Income Tax (Appeals) (CIT(A)) agreed with the assessee, allowing relief on a reduced amount after scrutinizing the claim item by item.

2. The core issue was the eligibility of the assessee for relief under section 35B based on its business activities. The department argued that since the assessee did not engage in exports and primarily dealt with Indian parties, it did not qualify for relief under section 35B. Conversely, the assessee maintained that its role in obtaining foreign market information and connecting Indian exporters with foreign buyers justified the claim. The CIT(A) supported the assessee's position, referencing past Tribunal decisions and the case of Indian Hotels Co. Ltd., which established that export sales were not a prerequisite for relief under section 35B.

3. Another issue raised was the disallowance of depreciation on a motor car by the CIT(A). The department contended that if a motor car was not wholly used for business purposes, a proportionate amount of depreciation should be disallowed according to section 38(2) of the Act. The Tribunal agreed with the department, reversing the CIT(A)'s decision and directing the disallowance of proportionate depreciation as per the Act.

4. The cross objection filed by the assessee addressed the treatment of expenses as entertainment or gifts. The CIT(A) confirmed a sum as entertainment expenses, which the assessee disputed, arguing that gifts to customers or employees should not be categorized as entertainment. The Tribunal agreed with the assessee, reducing the disallowance by the amount representing gifts and confirming the balance as entertainment expenses.

In conclusion, the Tribunal partly allowed both the departmental appeal and the cross objection filed by the assessee, addressing issues related to relief under section 35B, eligibility based on business activities, depreciation disallowance, and classification of expenses as entertainment or gifts.