1984 (1) TMI 165 - AT - Income Tax

Summary

Issues Involved:
1. Interpretation of Section 37(3) of the Income-tax Act, 1961 read with Rule 6D of the Income-tax Rules, 1962.
2. Deduction of surtax liability.
3. Disallowance of travelling allowance under Rule 6D.

Summary:

1. Interpretation of Section 37(3) and Rule 6D:
The primary issue in this appeal is the interpretation of Section 37(3) of the Income-tax Act, 1961 ('the Act') read with Rule 6D of the Income-tax Rules, 1962. The Delhi Bench 'E' of the Tribunal in Bharat Commerce & Industries v. ITO held that the period spent by an employee outside the headquarters was not considered as travelling time, and thus, the daily allowance for such periods was not subject to disallowance u/s 37(3)/Rule 6D. The Madras Bench 'C' disagreed with this view, leading to the matter being heard by a Special Bench.

2. Deduction of Surtax Liability:
The assessee, a public limited company, claimed a deduction of surtax liability of Rs. 39,197 from its profits. This claim was rejected by the authorities below, following the Special Bench decision in Amar Dye-Chem. Ltd. v. ITO, which held that such a deduction was not allowable. The Tribunal upheld this rejection.

3. Disallowance of Travelling Allowance:
The assessee objected to the disallowance of Rs. 9,160 as part of the travelling allowance under Rule 6D, despite the favorable decision in Bharat Commerce & Industries v. ITO by the Delhi Bench. The Commissioner (Appeals) sustained the disallowance, interpreting that Section 37(3) aimed to restrict unduly large amounts spent on daily allowances, including the entire period spent by employees outside their headquarters. The Tribunal examined the details of the expenditure and found that the disallowed amount related to reasonable business expenses. However, it upheld the disallowance, agreeing with the revenue's interpretation that hotel expenses incurred at the destination are also covered by the restrictions of Section 37(3) and Rule 6D.

Separate Judgment by Judges:
Shri Ch. G. Krishnamurthy and Shri C. Kochunni Nair, while agreeing with the views on disallowability and interpretative process, emphasized that the restriction under Rule 6D should be limited to daily allowances for hotel stays and not other business-related expenses incurred during the stay. They concurred with the final decision but highlighted the need to differentiate between daily allowances and other legitimate business expenses.

Conclusion:
The appeal was dismissed, affirming the disallowance of the surtax liability and the travelling allowance under Rule 6D as interpreted by the Commissioner (Appeals).