1977 (7) TMI 78 - AT - Income Tax

Summary

Issues:
1. Addition on account of difference in interest rates between the assessee company and its subsidiary company.
2. Validity of disallowance of payment made to the widow of a deceased employee.
3. Disallowance of entertainment expenses.
4. Disallowance of general charges.

Analysis:
1. Addition on account of difference in interest rates:
The appeals pertained to the assessment years 1970-71 and 1972-73, where the Income Tax Officer (ITO) disallowed the interest difference between loans advanced by the assessee company to its subsidiary company at a lower rate than what it paid. The Appellate Tribunal noted that the subsidiary company was practically an extension of the parent company's business, sharing directors, premises, and control. The Tribunal found that the borrowings were used for the extended business, and there was no established nexus between borrowings and lendings. Thus, the additions made by the ITO were deleted.

2. Disallowance of payment to deceased employee's widow:
In the assessment year 1972-73, a payment of Rs.40,000 was made to the widow of a deceased Financial Advisor. The ITO disallowed this payment as an ex gratia payment. However, the Tribunal held that the payment was made for the welfare of the deceased employee's family due to his long and meritorious service to the company. The Tribunal allowed the deduction, considering it as falling under welfare provisions for employees and their families.

3. Disallowance of entertainment expenses:
A disallowance of Rs.1,750 out of entertainment expenses was made in the same assessment year. The Tribunal decided to follow a judicial pronouncement in favor of the assessee and deleted the disallowance, considering the amount not significant against the total income.

4. Disallowance of general charges:
In the same assessment year, a disallowance of Rs.500 out of general charges was made. After hearing the parties, the Tribunal reduced the disallowance to Rs.250. The overall result was that the appeals were partly allowed, addressing the various objections raised by the assessee.