1994 (10) TMI 111 - AT - Income Tax

Issues Involved:

1. Sales-tax collected but not deposited.
2. Valuation of perquisite value of car.
3. Proportionate salary for the period out of India.
4. Compensation for termination of tenancy.
5. Discounts and commissions treated as sales promotion.
6. Travel expenses for executives' wives.
7. Hotel room rent, taxi hire, business gifts as entertainment expenses.
8. Expenditure on purchase of pineapple jam.
9. Perquisite value of chowkidar and servant.
10. Cash payments on account of house rent, conveyance, and medical expenses as salary.
11. Commission, discount, and order procuring commission.
12. Expenditure on glow signs.
13. Expenses on repairs of vehicles and insurance.
14. Overlapping disallowances under sections 37(3A) and 37(2A).
15. Entertainment expenses.

Detailed Analysis:

1. Sales-tax Collected but Not Deposited:

The assessee's issue regarding sales-tax collected but not deposited was addressed by upholding the authorities' orders, directing the Assessing Officer to allow the deduction in the year of actual payment, following the Delhi High Court decisions in Escorts Ltd. vs. Union of India and Sanghi Motors vs. Union of India.

2. Valuation of Perquisite Value of Car:

The assessee argued that the perquisite value of the car should be evaluated per Rule 3(c) of the IT Rules, 1962. The Tribunal found the assessee's submission reasonable and directed the Assessing Officer to rework the perquisite value based on the formula provided in Rule 3(c), acknowledging the difficulty in determining exact personal usage.

3. Proportionate Salary for the Period Out of India:

The assessee's claim to treat proportionate salary for the period out of India as exempt was rejected, following the Special Bench decision in ITO vs. Abbott Laboratories (P) Ltd.

4. Compensation for Termination of Tenancy:

The compensation received by the Singapore office for termination of tenancy was deemed a capital receipt. The Tribunal upheld the assessee's claim, distinguishing the case from others cited by the Departmental Representative and following the Delhi High Court decision in Bawa Shivcharan Singh vs. CIT.

5. Discounts and Commissions Treated as Sales Promotion:

The Tribunal deleted the inclusion of various discounts and commissions as sales promotion expenses under Section 37(3A) of the Act. These included discounts given to dealers, selling commissions paid to employees, special discounts for government department sales, quantity discounts, and awards to dealers for maintaining sales norms.

6. Travel Expenses for Executives' Wives:

The Tribunal allowed the claim for travel expenses incurred for executives' wives attending conventions, considering it reasonable and justified for commercial expediency, supported by previous Tribunal decisions.

7. Hotel Room Rent, Taxi Hire, Business Gifts as Entertainment Expenses:

The Tribunal upheld the treatment of hotel room rent, taxi hire, and business gifts as entertainment expenses, agreeing with the authorities' classification.

8. Expenditure on Purchase of Pineapple Jam:

The Tribunal allowed the relief of Rs. 2,920 claimed by the assessee for the purchase of pineapple jam, finding the arrangement with M/s General Sales Pvt. Ltd. justified due to financial constraints and the profit made on exports.

9. Perquisite Value of Chowkidar and Servant:

The Tribunal restricted the perquisite value of the chowkidar to Rs. 60 per month, as per the CBDT's Circular, acknowledging the chowkidar's role in looking after the company's property.

10. Cash Payments on Account of House Rent, Conveyance, and Medical Expenses as Salary:

The Tribunal upheld the CIT(A)'s decision to treat cash payments on account of house rent, conveyance, and medical expenses as salary, following the High Court decision in CIT vs. Sriram Refrigeration Industries Ltd.

11. Commission, Discount, and Order Procuring Commission:

The Tribunal upheld the CIT(A)'s order, classifying discounts and commissions as services rendered rather than sales promotion, supported by previous Tribunal and High Court decisions.

12. Expenditure on Glow Signs:

The Tribunal agreed with the CIT(A)'s conclusion that glow sign boards are necessary for indicating the place of business and demonstration purposes, requiring no interference.

13. Expenses on Repairs of Vehicles and Insurance:

The Tribunal followed the Bombay High Court decision in CIT vs. Chase Bright Steel Ltd., holding that expenses allowable under Sections 29 to 36 cannot be disallowed under Section 37(3A).

14. Overlapping Disallowances under Sections 37(3A) and 37(2A):

The Tribunal upheld the CIT(A)'s decision that expenses disallowed under Section 37(3A) cannot be disallowed again under Section 37(2A), as both sections serve specific, non-overlapping purposes.

15. Entertainment Expenses:

The Tribunal upheld the CIT(A)'s decision to allow weighted deduction for entertainment expenses, following previous Tribunal decisions.

Conclusion:

The appeals filed by the assessee were allowed in part, while the Revenue's appeal was dismissed.

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