1984 (1) TMI 169 - 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. Deductibility of surtax liability.
3. Disallowance of travelling allowance under Rule 6D.
4. Scope and meaning of "expenditure incurred in connection with travelling."

Issue-wise Detailed Analysis:

1. Interpretation of Section 37(3) of the Income Tax Act, 1961 read with Rule 6D of the Income Tax Rules, 1962:

The primary issue in this appeal concerns the interpretation of Section 37(3) of the Income Tax Act, 1961, read with Rule 6D of the Income Tax Rules, 1962. The Delhi Bench 'E' of the Tribunal, in the case of Bharat Commerce and Industries vs. ITO, had previously held that the period spent by an employee in staying on duty at a place outside the headquarters was not a period spent in travelling. Therefore, the daily allowance paid for such a period was outside the disallowance prescribed by Section 37(3)/Rule 6D. The Madras Bench 'C' found it difficult to agree with this reasoning and suggested that the appeal be heard by a Special Bench.

2. Deductibility of Surtax Liability:

The assessee, a public limited company, claimed a deduction of surtax liability amounting to Rs. 39,197 from its profits. The Tribunal, following the Special Bench decision in Amar Dye Chem Ltd. vs. ITO, held that such a deduction was not allowable. Consequently, the assessee's objection regarding this deduction was rejected.

3. Disallowance of Travelling Allowance under Rule 6D:

The assessee objected to the disallowance of Rs. 9160 as part of the travelling allowance under Rule 6D, despite a favorable decision by the Delhi Bench in the Bharat Commerce case. The Income Tax Officer (ITO) disallowed the expenditure based on Rule 6D, and the Commissioner of Income Tax (Appeals) sustained this disallowance, stating that Section 37(3) aimed to restrict unduly large amounts spent on daily allowances.

4. Scope and Meaning of "Expenditure Incurred in Connection with Travelling":

The assessee's counsel argued that "expenditure incurred in connection with travelling" should be limited to the movement from one place to another and should not include expenses incurred after reaching the destination. The counsel referred to dictionary definitions and judicial interpretations to support this view. The Tribunal, however, held that hotel expenses incurred at the place of destination also fall within the ambit of "travelling expenses" as per Section 37(3) and Rule 6D.

Conclusion:

The Tribunal concluded that the language of Section 37(3) and Rule 6D was clear and that hotel expenses incurred at the place of destination were to be considered as "expenditure incurred in connection with travelling." The Tribunal upheld the disallowance of the travelling allowance and dismissed the appeal. The Tribunal also emphasized that equitable considerations are not relevant in interpreting taxing statutes and that the legislative intent was to curb lavish and unnecessary expenditure on travelling.