1971 (5) TMI 6 - HC - Income Tax

Allowability of expenditure incurred to charter a plane to have the body of the Chairman who died while on inspection tour to be sent back - validity of disallowance of house rent allowance paid to director

Summary

Issues:
1. Deductibility of expenditure incurred for transferring a deceased person's body.
2. Disallowance of house allowance paid to a director.

Analysis:
1. The first issue revolves around the deductibility of an expenditure of Rs. 6,900 incurred by a private limited company for transferring a deceased former chairman's body. The Income-tax Officer initially disallowed the deduction, deeming it not incidental to the business. However, the Appellate Assistant Commissioner and subsequently the Tribunal allowed the deduction, considering it as a business expense. The High Court analyzed the situation, emphasizing that the deceased had come to Delhi for business purposes, and his return journey to Jodhpur would have been on the company's business as well. The court applied the test of commercial expediency, stating that the expenditure was for the purpose of carrying on the business, thus allowing the deduction. The judgment referenced previous cases to support the broader interpretation of "for the purpose of the business" under the Income-tax Act.

2. The second issue pertains to the disallowance of a portion of the house allowance paid to a director of the company. The director was receiving a salary increase upon relocation to Delhi, along with a furnished residence. The Tribunal disallowed a portion of the house allowance, considering it excessive based on an estimate. The court noted that the Tribunal had previously made a similar decision for a different assessment year. The assessee argued against the reduction, citing a Madras High Court case on director remuneration. However, the court upheld the Tribunal's decision, stating that the Tribunal had applied its mind to the business nature and necessity of the director's remuneration, thus finding the decision reasonable and ruling in favor of the revenue.

In conclusion, the High Court ruled in favor of the assessee regarding the deductibility of the expenditure for transferring the deceased person's body, while ruling in favor of the revenue regarding the disallowance of a portion of the house allowance paid to the director. The judgment provided detailed reasoning based on the interpretation of relevant legal provisions and precedents, ensuring a comprehensive analysis of both issues involved in the case.