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TMI Blog1980 (1) TMI 119X X X X Extracts X X X X X X X X Extracts X X X X ..... . A set of three rooms being the residential unit and located in the first floor of the building was given to Folk Garments Pvt. Ltd. on a monthly rental of Rs. 400. The latter company gave it for residence to its Managing Director Mrs. Aruna Wadhwa. The rest of the premises comprising six rooms and a big lawn were retained by Sh. Sachdev for the purpose of his own business. The assessee company was incorporated in 1973 and it took over the business of India Exports from Sh. Sachdev as a running concern with all its assets and liabilities w.e.f.4th March, 1973. An agreement to this effect was executed on6th Aug., 1973. M/s. Folk Garments (P) Ltd. continued to occupy the first floor which as stated above was given to its Managing Director Mrs. Aruna Wadhwa at a monthly rental of Rs. 400. It may be stated that Mrs. Aruna Wadhwa also happened to be the Director of the assessee company. 3. The ITO was of the view that the rent realised from M/s Folk Garments at Rs. 400. p.m. was not commensurate with reference to the rent of Rs. 2,100 p.m. paid by it to its own landlords. According to him, the fair rental of the said portion could be taken to be Rs. 800 p.m. He, therefore, held that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he agreement that the amount of Rs. 400 realisable from Folk Garments would also include electricity and water charges. He further submitted that Sh. Sachdev was also in the past paying similar charges even for the premises let out to India Exports and International Exports. He was, however, unable to produce before us any agreement to this effect. In the absence of any such agreement, we cannot be led to believe that the amount of Rs. 400 possibly also included electricity and water charges which are of the varying character. Moreover, if we presume the above as the counsel for the assessee wanted us to, that would clearly lead us to the conclusion that the rental of Rs. 400 per month chargeable from Folk Garments was not a reasonable rent. We have held it to be a reasonable rent only if it is exclusive of electricity and water charges. 7. It was, however, further contended before us that in any case, the disallowance was excessive. The ITO had made a disallowance of Rs. 2,000 on the presumption that the claim of the assessee for water and electricity expenses was of Rs. 10,699 for the entire premises. This fact is also mentioned by the AAC in his order. It was submitted before ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ccrue or by whom the profits are received. No tax can be levied on a benamidar in whose name the business transactions are effected and who is not really entitled to the profits." The case relied on by the AAC also support the above view and also the view that if an assessee takes over a running business belonging to another and offers to tax the income relating to that business, then the liabilities relating there to have also to be considered in the computation of that income, We, therefore, uphold the view of the AAC with regard to the above deletion of Rs. 10,000 also. 10. The next contention relates to the deletion to the disallowance of Rs. 11,278. The assessee received a telex from its representative stationed inUSAfor sending samples for a fair so as to reach there before20th May, 1973. The assessee sent Shri Rakesh Malhotra, one of its employees to the States with the samples. Sh. Malhotra leftIndiaon18th May, 1973. and returned back on10th June, 1973. He took samples with him. He attended the Trade Fair inUSAand also acquainted with the working in that country to study the customer s liking for Indian garments. The assessee incurred an expenditure of Rs. 11,278 on his ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Department feels aggrieved with the above finding. After hearing the partners, we are of the opinion that the assessee is entitled to the required relief on the said amount of Rs. 7,000. We find that the assessee had actually to pay a net rental of Rs, 28,000 it is also not denied that the assessee is mainly an exporter, inasmuch as, its total exports amount to Rs. 1,46,78,412 as against the internal sales of only Rs. 64,894. The claim has also been restricted only to 1/4th of the total rent. In the case of M/s J. Hemchand Co. Bombay (1) the Special Bench of the Tribunal had held that the allowance of rent at 50 per cent of the claim was entitled to weighted deduction under s. 35-B. 15. The next item is of travelling expenses of Sh. Malhotra. We have already held above that his visit toUSAwas in connection with taking samples to a Trade Fair. The expenditure is clearly entitled to relief u/cls.(i) and (ii) of s. 35-B (1)(b) of the Act. Here the Relief was denied by the ITO as in his opinion, the visit of Sh. Malhotra was not for the purpose of the business. It was, however, allowed by the AAC, For the reasons given above, we uphold his view. 16. The last item consists of expe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he asst. yr. 1974-75, he had allowed such relief on rent of Rs. 7,000. Which too was about 25 per cent of the total rent paid in that year. We have confirmed his finding in the asst. yr. 1974-75. For the same reasons, we confirm his finding in the year under appeal also. 21. Besides the above, the AAC has also allowed weighted deduction on 80 per cent of the expenses in respect of international calls and postage, export promotion counsel fee, cost of printing charges and salary of the typist. Similar allowance was made by him in the asst. yr. 1974-75 and the order has been confirmed by us. Following our findings in that year, we confirm his finding for the year under appeal also. 22. We now take the appeal for the asst, yr. 1975-77. The first contention in the appeal relates to the deletion of Rs. 4,000. This addition was made by the ITO as he was of the opinion that the first floor of the premises situated at Bungalow No. 4. West Patel Nagar occupied by Mrs. Wadhwa was given at a concessional rent to Folk Garments Pvt. Ltd. The amount of Rs. 4,000 was added by him as Mrs. Wadhwa occupied the premises only for the period of 10 months during the year. The addition was deleted by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the erections were purely of temporary nature. In this connection, he also took note of the fact that the land did not belong to the assessee and that the efforts were going on for the registration in its name. The AAC also took note of the fact that the second hand material had been used in the construction and that no consideration had been given to the design of the structure with the result that there was no surety of its life. The architect in his examination before the ITO has also stated that it could fall even if there was small tremor and that in the normal course, it would last for four to five years, the AAC also inferred from the facts that the structure was meant to be pulled down to be replaced by a permanent structure. His finding therefore, was that it was purely temporary erection entitled to depreciation @ 100 per cent. 25. The finding of the AAC has been challenged before us by the Department. Besides reiterating the arguments advanced by the ITO in his order, the learned Departmental Representative also submitted before us that the structures raised by the assessee were not erections which alone, if of purely temporary nature, were entitled to depreciation @ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... AAC did not agree with this view and deleted the addition of Rs. 9,208. 29. The departmental is now in appeal before us. In our opinion, the view taken by the AAC is the correct view. Rule 6-D is clear on the point that the full expenditure in respect of travel by rail or road has to be allowed. There is no restriction that the travel by road must be limited to the distance between the Headquarters and the place visited and not to the road journey undertaken at the place of visit. We, therefore, uphold the deletion of Rs. 9,208 also. 30. The last contention in the appeal relates to the finding of the AAC that the assessee was an Industrial company and was, therefore entitled to lower rate of tax as laid down in paragraph F of Part1 of the First Schedule to the Finance Act, 1976. The claim was put up before the ITO. It was stated before him that the activity of the assessee was manufacture and processing of garments and then selling them in the market. The assessee company explained its activity in the following words. "The cloth is purchased by the company and given to the two sister companies and numerous other artisans for the purpose of tailoring garment on contract work ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a concessional rate. 33. The above finding of the AAC has been challenged before us. We have heard the parties. There is no dispute before us that the process of stitching and subjecting the garments to other processes in order to make them marketable do by themselves fall in the definitions of 'manufacture' and 'processing' The short question on which the relief was denied by the ITO was that the assessee itself was not mainly engaged either in the manufacture of goods dealt with by it or in their processing. In our opinion, that aspect of the matter is fully covered not only by the decisions of Madras High Court referred to above and relied on by the AAC but also by another decision of Calcutta High Court in Griffon Laboratories Pvt. Ltd. vs CIT (3). In the case of Madras High Court reported in 107 ITR 822 the assessee was publishing a journal on sales tax cases. It was found that the printing of the journal was done from outside. However, folding and stitching of printed sheets were done by the assessee company by employing some labour contractors. Thereafter, they were packed and despatched by the appellant company to the various subscribers. The short point to be considered ..... X X X X Extracts X X X X X X X X Extracts X X X X
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