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TMI Blog1997 (9) TMI 77X X X X Extracts X X X X X X X X Extracts X X X X ..... mstances of the case, the Tribunal was correct in holding that the computation of admissible entertainment expenses under section 37(2) be made with reference to the business income as a whole and not with reference to each unit of the business (sic)? 2. Whether, on the facts and in the circumstances of the case, the Tribunal was justified in issuing general direction to the Inspecting Assistant Commissioner (Assessment) to compute deduction under section 80J after ignoring the rules to the extent to which they are inconsistent with or are in conflict with the parent enactment?" The assessee-company in the relevant assessment year was engaged in the manufacture of rayon and textile goods. Besides having its main mill at Kanpur, the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly, the claim of entertainment expenses should have been considered unitwise and not vis-a-vis the total income of the assessee-company. The Appellate Assistant Commissioner rejected the contention of the assessee and concurred with the Assessing Officer. On further appeal, the Appellate Tribunal following its earlier order in the case of the assessee for the assessment year 1964-65 held that the entertainment expenses should have been worked out unitwise and not with reference to the total income of the assessee. In its order relating to the assessment year 1964-65, the Appellate Tribunal found as follows : "On a consideration of the facts of the case and the submissions made before us, we are of the opinion that the approach made by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stante clause says that notwithstanding anything contained in sub-section (1), no expenditure in the nature of entertainment expenditure shall be allowed in the case of a company (emphasis supplied) which exceeds the aggregate amount computed in clauses (i), (ii), (iii) and (iv) of sub-section (2) reproduction of which is not necessary for the decision of the case. No doubt, the units of the assessee-company are independent and identifiable; separate balance-sheets and profit and loss accounts for each unit have been drawn up and the income of each unit was computed by the Assessing Officer; nevertheless none of the units of the assessee-company is an assessee or a company. The statutory prohibition in sub-section (2) which carves out an ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o a company and not to its units. Profits and gains of business are computed in Chapter IV-D of the Act. There is no provision in this Chapter to deduct entertainment expenditure from the total income of an unit of a company and, therefore, the submission that the income of each unit has been computed separately on the basis of its profit and loss account is of no significance. The company may have incurred expenditure of varying types, but no deduction can be claimed unless it is provided under the Act. Sub-section (2) of section 37 is the only provision to allow deduction in respect of the entertainment expenditure in the case of a company on the gradation basis as set out in the clauses (i), (ii), (iii) and (iv) of sub-section (2). T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nment expenditure, may look attractive on the face of it but that is not permissible by the clear language employed in sub-section (2) of section 37 and, therefore, that has to be rejected. Turning to question No. 2, it is important to note that the assessee raised for the first time before the Appellate Assistant Commissioner the following ground : "The learned Income-tax Officer has omitted to consider the appellant company's claim under section 80J of the Income-tax Act, 1961. On the facts, evidence and material on record, he should have considered the claim under section 80J and allowed it to be carried forward to the subsequent year." The above additional ground was admitted by the Appellate Assistant Commissioner, who observed i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... accordingly. We, therefore, modify the direction of the Appellate Assistant Commissioner and direct the Inspecting Assistant Commissioner who holds jurisdiction over the case to consider the assessee's claim under section 80J on merits keeping in view our observations in this order." In Lohia Machines Ltd. v. Union of India [1985] 152 ITR 308 (SC), the Supreme Court held that sub-rule (3) of rule 19A of the Income-tax Rules, 1962 (for short, the Rules), in so far as it provided for exclusion of borrowed monies and debts and particularly long-term borrowings in the computation of the "capital employed" by a new industrial undertaking for purposes of tax exemption, could not be said to be outside the rule-making authority, conferred on the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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