1983 (11) TMI 115 - AT - Income Tax

Summary

Issues:
1. Disallowance of expenses for earning and collecting dividend income.
2. Disallowance of entertainment expenses.
3. Classification of the assessee as an industrial company for tax purposes.

Analysis:

Issue 1: Disallowance of expenses for earning and collecting dividend income
- The Revenue contended that expenses were incurred for earning and collecting dividend income, while the assessee argued that no such expenses were necessary.
- The CIT (A) found the addition made by the ITO to be arbitrary and deleted the amount added to the income.
- The Tribunal upheld the CIT (A)'s decision, stating that there was no evidence of expenses incurred by the assessee for collecting dividends, leading to the deletion of the addition.
- The Tribunal also rejected the cross objection by the assessee, as the CIT (A) had already ruled in favor of the assessee on this issue.

Issue 2: Disallowance of entertainment expenses
- The ITO disallowed a portion of general charges claimed as entertainment expenses, citing lack of details and inadmissibility under section 37(2A) of the Act.
- The CIT (A) overturned the disallowance based on precedents and the nature of the expenses.
- The Tribunal supported the CIT (A)'s decision, holding that expenses for offering tea, cigarettes, etc., to staff or business constituents were not classified as entertainment expenses.

Issue 3: Classification of the assessee as an industrial company
- The ITO initially treated the assessee as not an industrial company for tax computation.
- The CIT (A) disagreed, citing relevant judicial pronouncements and directed the ITO to verify if the income from manufacturing activities exceeded 51% of the total income.
- The Tribunal upheld the CIT (A)'s decision, emphasizing that the assessee's engagement in manufacturing activities qualified it as an industrial company, subject to verification of income percentages by the ITO.

In conclusion, the Tribunal dismissed both the Departmental appeal and the cross objection, affirming the decisions of the CIT (A) on all issues.