1991 (4) TMI 172 - AT - Income Tax

Summary

Issues:
1. Allowability of Leave and Licence fee as revenue expenses.
2. Disallowance of taxi hire charges under section 37(3A) of the Income-tax Act.

Issue 1: Allowability of Leave and Licence fee as revenue expenses
The appeal by the revenue for the assessment year 1984-85 challenged the order of the CIT (Appeals) regarding the Leave and Licence fee payable to Everlite Pvt. Ltd. The CIT (Appeals) had allowed the fee as revenue expenses. The Appellate Tribunal noted that the first three grounds were already covered in earlier years and decided to address the last ground first, which involved the disallowance of taxi hire charges under section 37(3A).

Issue 2: Disallowance of taxi hire charges under section 37(3A) of the Income-tax Act
The Assessing Officer disallowed taxi hire charges under section 37(3A) after finding them debited in the "Conveyance Account." The CIT (Appeals) accepted the contention that section 37(3A) applied only to hire charges for private cars, not taxi fares for day-to-day business activities. The Appellate Tribunal heard arguments from both sides. The revenue contended that section 37(3A) applied to all hire charges, while the assessee argued that the provision was limited to private cars hired for a specified period. The Tribunal analyzed the relevant provisions of section 37(3A) and 37(3B) and concluded that the term "car plied for hire" encompassed all kinds of taxies and motor cars, without distinction between private and public taxies. The Tribunal rejected the argument that literal application of the provision would lead to absurd results, emphasizing that the provision aimed to restrict unreasonable expenditure on running and maintenance of vehicles. The Tribunal held that the CIT (Appeals) erred in excluding taxi hire charges from the purview of section 37(3A) and restored the order of the Assessing Officer disallowing the charges.

In conclusion, the Appellate Tribunal upheld the disallowance of taxi hire charges under section 37(3A) and set aside the decision of the CIT (Appeals) in this regard.