1989 (5) TMI 121 - AT - Income Tax

Summary

Issues:
1. Inclusion of the cost of air tickets received from manufacturers in the total income of the appellant.

The judgment addressed the issue of whether the sum of Rs. 20,206, representing the cost of air tickets received from two manufacturers of hot drinks, should be included in the total income of the appellant. The appellant contended that the receipt was of a casual nature and exempt from tax, and that the expenditure was incurred for acquiring knowledge about marketing liquor products and learning technical know-how. The Income Tax Officer (ITO) considered the receipt as a benefit or perquisite derived by the assessee but failed to address whether it should be considered as deductible or allowable expenditure. The ITO added the amount to the income of the assessee firm. However, before the Commissioner of Income Tax (Appeals) [CIT(A)], the appellant stressed that the expenditure should be considered as allowable business expenditure. The CIT(A) found that the tours undertaken by the partners did not appear to benefit the business, as details of the visits and their impact on the business were not provided. Consequently, the claim for deduction of the amount was dismissed by the CIT(A).

The second appeal by the assessee contended that the ITO failed to consider whether the amount could be allowed as business expenditure, despite specific averments made in a letter to the ITO explaining the business purpose for incurring the expenditure. The appellant argued that the expenditure was essential for the trade and should be treated as casual or incurred in the course of business. The Tribunal considered the nature of the scheme where free air tickets were provided by manufacturers based on targeted sales. The Tribunal held that the receipt of the air ticket should be considered as a benefit under section 28(iv) of the Income Tax Act. The Tribunal also referenced a previous order where a similar case was considered as a perquisite. The main question was whether the amount should be considered as allowable business expenditure. The Tribunal noted that the visit to foreign countries was at the instance of the manufacturers, indicating a business purpose. The Tribunal held that 1/10th of the expenditure should be disallowed as representing expenditure for pleasure trips, while the remaining 9/10th should be allowed as business expenditure.

In conclusion, the appeal was allowed to the extent that 1/10th of the expenditure was disallowed as representing pleasure trips, while the remaining 9/10th was allowed as business expenditure.