1979 (2) TMI 122 - AT - Income Tax

Issues Involved:
1. Disallowance of employee welfare expenses.
2. Denial of weighted deduction under Section 35B of the Income Tax Act.
3. Denial of weighted deduction on specific expenditures related to export market development.
4. Addition of perquisites provided to a director under Section 40A(5) of the Income Tax Act.

Detailed Analysis:

1. Disallowance of Employee Welfare Expenses:

Facts:
The assessee arranged trips for its employees to Vaishnu Devi, incurring expenses totaling Rs. 9,901. This expenditure was disallowed by the Income Tax Officer (ITO) on the grounds that it was not laid out wholly and exclusively for business purposes and was related to a place of religious interest.

Contention:
The assessee argued that the trips were for the welfare of employees of different religious faiths and should be considered as business expenditure.

Judgment:
The Tribunal held that the expenditure was indeed for the welfare of employees and was expended for business considerations and expediency. The disallowance was vacated, and the assessee succeeded in this ground.

2. Denial of Weighted Deduction under Section 35B:

Facts:
The assessee incurred Rs. 2,318 on its foreign visitors to boost exports. The ITO denied the weighted deduction under Section 35B, stating that Section 37(2B) prohibits such deductions.

Contention:
The assessee contended that Section 37(2B) does not apply to Section 35B and relied on a Special Bench decision of the ITAT, Bombay Bench 'D', and the Bombay High Court judgment in the case of CIT vs. Eldee Wire Ropes Ltd.

Judgment:
The Tribunal held that the expenditure fell within the purview of clauses (i) and (ii) of Section 35B(1)(b) and was allowable as a weighted deduction. The Tribunal rejected the Revenue's argument that Section 37(2B) prohibits such deductions.

3. Denial of Weighted Deduction on Specific Expenditures:

Facts:
The assessee claimed weighted deductions on various expenditures related to export market development, including payments to ECGC, expenses on free samples, and expenses on foreign visitors.

Contention:
The assessee argued that these expenditures should be allowed under Section 35B. The Revenue contended that the situs of expenditure being in India disqualified it from weighted deduction and that Section 35B only applies to pre-sale expenses.

Judgment:
The Tribunal allowed the weighted deduction for:
- Payments to ECGC, relying on the Special Bench decision that such payments fall under clause (ii) of Section 35B(1)(b).
- Expenses on free samples, under clause (vi) of Section 35B(1)(b).
- Expenses on foreign visitors, under clauses (i) and (ii) of Section 35B(1)(b).
- Commission payments to M/s. Kabul Trading Co., under clauses (i), (ii), and (vi) of Section 35B(1)(b), rejecting the Revenue's argument that only pre-sale expenses qualify for weighted deduction.

4. Addition of Perquisites Provided to a Director:

Facts:
The ITO added Rs. 4,011 as perquisites provided to a director, Chiranji Lal, under Section 40A(5). The AAC upheld this addition.

Contention:
The assessee argued that the total remuneration to the director was below the upper limit of Rs. 72,000 per annum, and thus, Section 40(c) should apply instead of Section 40A(5).

Judgment:
The Tribunal vacated the addition, relying on the Gujarat High Court judgment in Addl. CIT vs. Tarun Commercial Mills Ltd., which held that Section 40(c) takes precedence over Section 40A(5) when it comes to directors' remuneration.

Conclusion:
The assessee succeeded in grounds 1, 2, and 5 entirely, and partly in ground 3. Ground 4 was dismissed as withdrawn.

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