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TMI Blog2011 (3) TMI 151X X X X Extracts X X X X X X X X Extracts X X X X ..... nce company - In such a case, the authority below rightly granted depreciation at the rate of 50 per cent for the part use of the said aircraft in accordance with law - Decided in favor of the assessee Deduction u/s 80HHD - total turnover versus gross receipt - for computation of the relief under section 80HHD, the total turnover alone is inconsequential but the Assessing Officer has relied upon it - Held that: for computation of the relief under section 80HHD, the total turnover alone is inconsequential - for computation of gross total receipt in business, the opening Sundry Debtor should be added to the total turnover and from that the closing Sundry Debtor should be deducted in order to arrive at the correct figure - AO wrongly considered the total turnover of Rs. 395,62,34,559 instead of gross receipt in business amounting to Rs. 390,93,27,318 certified by the Auditor and accordingly, the relief allowed under section 80HHD should be enhanced to Rs. 77,62,17,303 instead of Rs. 77,53,58,47 - Decided in the favour of the assessee X X X X Extracts X X X X X X X X Extracts X X X X ..... section 37(3) of the Act. Such claim was, however, disallowed by the assessee. On an appeal being preferred, the CIT(A), however, deleted the said addition and granted benefit of Rule 6B of the Act. (b) Being dissatisfied, the revenue preferred appeal before the Tribunal and the learned Tribunal upheld the order of the CIT(A) thereby holding that the cost of presentation of the article should be deleted as business expenditure in terms of section 37 of the Act. (c) It further appears from the return submitted by the assessee that it claimed a sum of Rs. 3,04,89,602 as depreciation on the 'imported new aircraft' acquired by it during the year under consideration. The aircraft was purchased by the assessee from M/s. Jet Sales Ltd., U.K. and the physical possession of the aircraft was taken by the representative of the assessee on 11-3-1996 at the Essendon Airport, Victoria, Australia. Copies of the relevant documents were filed on the record of the Assessing Officer. The Assessing Officer, however, stated that in absence of documentary evidence as to when the impugned aircraft was brought to India from Australia and put to business use, the claim of depreciation could not be all ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of deduction. (g) Being dissatisfied, the revenue has come up with the present appeal. 4. Therefore, the first question that falls for determination before us is whether the learned Tribunal below committed substantial error of law in confirming the deletion of disallowance of Rs. 1,54,875 on account of gifts when the tax audit report of the assessee itself stated that the same is disallowable under Rule 6B of the Income-tax Rule and whether the same is covered by section 37(2) of the Act. 5. In order to appreciate the aforesaid question, it will be profitable to refer to the provision contained in section 37 of the Act and Rule 6B as it stood at the relevant point of time : "37(1) Any expenditure not being expenditure of the nature described in sections 30 to 36 and not being in the nature of capital expenditure of personal expenses of the assessee, laid out or expended wholly and exclusively for the purposes of the business or profession shall be allowed in computing the income chargeable under the head "Profits and gains of business or profession". (2) Notwithstanding anything contained in sub-section (1), any expenditure in the nature of entertainment expenditure incurred ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... article as increased by a sum equal to fifty per cent of the expenditure in excess of Rs. 1,000 on such article; (b) in respect of any advertisement outside India involving payment in foreign currency, the amount covered by foreign exchange granted to, or permitted to be acquired by, the assessee for this purpose under the law relating to the foreign exchange for the time being in force. (2)(i) Where the Assessing Officer is of opinion that any expenditure on advertisement of the nature described in clause (ii) is excessive or unreasonable having regard to the legitimate business needs of the assessee and the benefit derived by or accruing to him therefrom, that portion of the expenditure which is so considered by him to be excessive or unreasonable shall not be allowed as a deduction in computing the total income; (ii) the expenditure referred to in clause (i) is that incurred on advertisement involving payment ‑ (A) to a person (including in the case of a company, firm, an association of persons or a Hindu undivided family, a director, partner or member, as the case may be, of such company, firm, association or family) who has a substantial interest in the business o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... provision, we find that an assessee can get the benefit of deduction as business expenditure for the amount spent on any of the items as provided and to the extent as stated in sections 30 to 36 of the Act. If any expenditure made is not of the nature described in sections 30 to 36 of the Act an assessee can nevertheless get benefit of deduction by the residuary section 37 provided that such expenditure is not in the nature of capital expenditure or personal expenses of the assessee with further condition that the same must not be under other exceptions pointed out in various sub-sections of section 37 of the Act. Although Mr. Nizamuddin, the learned Advocate appearing on behalf of the Revenue, tried to convince us that the expenditure for presentation of gift, as made by the assessee in this case, comes within the purview of hospitality as provided in clause (iii) of section 37(2), we are not at all impressed by such submission for the simple reason that in the case before us the assessee is running the business of hotel whose object is to provide hospitality to its clients. 7. In our opinion, the assessee being engaged in a business of offering hospitality to its clients, for t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... festly absurd and unjust result which could never have been intended by the legislature, the court may modify the language used by the legislature or even do some violence to it, so as to achieve the obvious intention of the legislature and produce a rational construction. 8. Rule 6B of the Income-tax Rules deals with the 'expenditure on advertisement, and undisputedly on those gifts the name or logo of the assessee was not used and, therefore, in our view the Commissioner of Income-Tax (Appeals) and the Tribunal rightly gave deduction of the said amount as business expenditure within the meaning of section 37 of the Act. 9. The first question formulated by us is, thus, answered in favour of the assessee and in the negative. 10. The next question that arises for determination is whether the Tribunal below and the Commissioner of Income-tax (Appeals) committed any error in allowing depreciation in terms of section 32 of the Act on new aircraft purchased by the assessee to the extent of 50 per cent. 11. Mr. Nizamuddin, in this connection, strenuously contended before us that although the assessee was no doubt the owner of the said aircraft yet there was no evidence to indicate th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n tourists shall be the amount which bears to the profit of the business (as computed under the head 'profits and gains of business or profession') the same proportion as the receipt specified in sub-section (2) as reduced by any payment referred to sub-section (2A) made by the assessee bearing to take receipts of the business carried on by the assessee." 16. A plain reading of the aforesaid provision makes it clear that for computation of the relief under section 80HHD, the total turnover alone is inconsequential but the Assessing Officer has relied upon it. In our opinion, for computation of gross total receipt in business, the opening Sundry Debtor should be added to the total turnover and from that the closing Sundry Debtor should be deducted in order to arrive at the correct figure and that has been followed by the Auditor who has certified the entitlement of 61.07 per cent of the business profit. Our aforesaid view finds support from the decision of the Supreme Court in the case of CIT v. Lakshmi Machine Works [2007] 290 ITR 667 while interpreting the similar provision of section 80HHC(3) of the Act. It further appears that copy of the Accountant's certificate in Form No. CC ..... X X X X Extracts X X X X X X X X Extracts X X X X
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