1982 (2) TMI 118 - AT - Income Tax

Summary

Issues Involved:
1. Disallowance of rent, telephone expenses, car and jeep expenses, and depreciation.
2. Separate allocation of income from dividends and interest on FDRs.

Detailed Analysis:

1. Disallowance of Rent, Telephone Expenses, Car and Jeep Expenses, and Depreciation

Ground Nos. 1, 2, 3, and 5:
The assessee contested the disallowances made by the CIT (Appeals) regarding rent, telephone expenses, car and jeep expenses, and depreciation. The counsel for the assessee admitted that these issues were previously decided against them in the Tribunal for the assessment year 1976-77 but argued that those decisions should not serve as precedents. The counsel emphasized that the disallowances were based on incorrect facts, particularly the observation that none of the partners owned any cars. It was argued that the disallowances should not have been made as the expenses were incurred for business purposes, citing several Supreme Court decisions to support their claim.

The Departmental Representative argued that the disallowances were justified under sections 37 and 38 of the IT Act, relying on the Tribunal's previous decision and commentary by Chaturvedi & Pithisaria.

The Tribunal noted that the previous decision explicitly stated it should not serve as a precedent. Therefore, the Tribunal adjudicated the issue anew, considering the facts and legal arguments presented.

The Tribunal found that the disallowances were not justified. It was noted that the firm was a distinct assessable entity separate from its partners, and expenses incurred for business purposes should be deductible even if they also benefit a third party. The Tribunal cited several Supreme Court decisions, including D.S. Bist and Sons, Chandulal Keshavlal & Co., and Sassoon J. David and Co. Ltd., to support the principle that business expenses incurred for commercial expediency are deductible.

The Tribunal concluded that the disallowances made by the CIT (Appeals) were incorrect. The Tribunal accepted the argument that personal use of business assets by partners was incidental and that partners' personal assets were also used for business purposes. Therefore, the entire disallowance was deleted.

2. Separate Allocation of Income from Dividends and Interest on FDRs

Ground No. 6:
The assessee argued that the income from dividends and interest on FDRs should be separately allocated to the partners, as these incomes were exempt in the partners' hands. The CIT (Appeals) had rejected this contention, finding the reliance on previous decisions misplaced.

The Tribunal, however, found merit in the assessee's argument. It noted that under section 67(2) of the IT Act, the allocation should have been made to allow the partners to benefit from the exemptions available under the Act. The Tribunal accepted the assessee's contention and directed that the income from dividends and interest on FDRs be separately allocated to the partners.

Conclusion:
The appeal was allowed in favor of the assessee. The Tribunal deleted the disallowances related to rent, telephone expenses, car and jeep expenses, and depreciation. It also directed the separate allocation of income from dividends and interest on FDRs to the partners.