1987 (1) TMI 149 - AT - Income Tax

Issues Involved:
1. Disallowance of litigation expenses.
2. Disallowance of rest house expenditure.
3. Deduction of interest under Section 217(a).
4. Quantum of deduction under Section 80-J.
5. Accrual of interest on fixed deposit.
6. Rejection of surtax claim.
7. Charging of interest under Section 217.
8. Deletion of sales tax liability.
9. Deletion of leave and license fee addition.
10. Deduction under Section 35-B.
11. Taxability of costs and litigation charges.
12. Salary and perquisite under Section 40-A(5).
13. Additional ground of appeal by Revenue.

Detailed Analysis:

1. Disallowance of Litigation Expenses:
The Tribunal confirmed the disallowance of Rs. 9,51,627 as litigation expenses against the National Bank of Pakistan based on previous decisions. Similarly, the disallowance of Rs. 1,02,332 related to fees for written and verbal opinion, holding meetings, and appearance before the Court of Appeal was upheld, as these expenses could not be bifurcated from the related litigation expenses.

2. Disallowance of Rest House Expenditure:
The Tribunal upheld the disallowance of Rs. 78,625 for rest house expenses at Bharatpur and New Delhi, following the same reasoning as in the previous year, where it was established that the guest house was not exclusively used by the assessee's employees.

3. Deduction of Interest under Section 217(a):
The Tribunal rejected the claim for deduction of interest of Rs. 25,97,816 charged under Section 217(a) for the assessment year 1974-75, citing precedents that statutory interest cannot be allowed as business expenditure.

4. Quantum of Deduction under Section 80-J:
The Tribunal dismissed the ground regarding the quantum of deduction under Section 80-J, referencing the Supreme Court judgment in Lohia Machines Ltd. v. Union of India.

5. Accrual of Interest on Fixed Deposit:
The Tribunal ruled in favor of the assessee, holding that interest on the fixed deposit with Bank of India, London Branch, accrued only on the date of maturity (7-11-1977) and not before. Hence, no proportionate interest could be taxed for the assessment year 1978-79.

6. Rejection of Surtax Claim:
The Tribunal upheld the rejection of the surtax liability claim, consistent with previous decisions in the assessee's own case and the Special Bench decision in Amar Dye Chem. Ltd.

7. Charging of Interest under Section 217:
The Tribunal directed the assessing officer to exercise discretion under Rule 40 regarding the waiver or reduction of interest under Section 217. It was held that the CIT (Appeals) erred in refusing to entertain the contention against charging of interest under Section 217.

8. Deletion of Sales Tax Liability:
The Tribunal rejected the Revenue's appeal against the deletion of Rs. 7,00,557 on account of sales tax liability, following consistent decisions in the assessee's favor for previous years.

9. Deletion of Leave and License Fee Addition:
The Tribunal upheld the deletion of Rs. 1,64,036 added as leave and license fee, referencing previous Tribunal decisions that no leave and license fee accrued after 30th November 1974.

10. Deduction under Section 35-B:
The Tribunal rejected the Revenue's appeal against the deduction under Section 35-B on expenditure of Rs. 1,39,045, following the Tribunal's decision for the assessment year 1977-78.

11. Taxability of Costs and Litigation Charges:
The Tribunal found no justification for the Revenue's grievance regarding the taxability of costs and litigation charges awarded to the assessee, as the related litigation expenses had been disallowed.

12. Salary and Perquisite under Section 40-A(5):
The Tribunal upheld the CIT (Appeals)'s order regarding the non-inclusion of medical expenses reimbursement as a perquisite, referencing the Delhi High Court judgment in Instalment Supply (P.) Ltd. v. CIT.

13. Additional Ground of Appeal by Revenue:
The Tribunal declined the Revenue's request to restore the issue regarding the taxability of interest income to the assessing officer or CIT (Appeals), as it was not processed or assessed by the authorities below. The Tribunal emphasized that the issue was already decided in the assessee's favor for the assessment year 1977-78 and could not be reopened based on observations for a different year.

Conclusion:
The Tribunal partly allowed the assessee's appeal and dismissed the Revenue's appeal, affirming the CIT (Appeals)'s decisions on various grounds while providing specific directions for the assessing officer to reconsider the waiver or reduction of interest under Section 217.

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