9911796707
TMI Blog1994 (6) TMI 8X X X X Extracts X X X X X X X X Extracts X X X X ..... computing the income chargeable under the head "Profits and gains of business or profession", we propose to first notice the facts that form the core of the statement of the case and then follow the scheme of the law for our conclusions. The assessee is a money-lender, who it is said, purchased certain gift articles and distributed them to his customers at the commencement of a new chit subscription. The assessee claimed deduction of this expenditure while computing the income for tax on profits and gains of business or profession. The Income-tax Officer, however, held that since the amount of gift exceeded Rs, 2,500 and thus should have been paid only by cheque under the law, the assessee was not entitled to claim the same as a valid and acknowledgeable expenditure under the Act and the Rules. The Income-tax Officer disallowed another amount of Rs. 6,188 as, according to him, the cost of each article was more than Rs. 50 and thus it fell under rule 6B(1)(a) of the Income-tax Rules, 1962. The assessee appealed. The Commissioner of Income-tax (Appeals), however, sustained the disallowance of Rs. 2,750 by the Income-tax Officer, but reversed the latter's order with respect to Rs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat under rule 6B(3) only that much in excess of Rs. 2,500 could only be disallowed and that, therefore, Rs. 2,500 should in any event be allowed. We cannot agree with the assessee. If rule 6B(3) is to be invoked the whole expenditure paid in cash can be disallowed. The wording of rule 6B(3) is very clear to that effect. But what we think is that when two provisions of equal force are there to disallow an expenditure, rule 6B(3) and section 40A(3), the authority should resort only to the less onerous. It has also to be noticed that section 37(3) does not lay down any guidelines to frame a rule like rule 6B(3). Further, section 37(3) under which rule 6B(3) has been framed, does not supersede section 40A(3) read with sub-section (1) but supersedes section 37(3) of the Income-tax Act, 1961. It is, therefore, section 40A(3) and the rule framed thereunder, i.e., rule 6DD only. The Commissioner of Incometax (Appeals) was not justified in resorting to rule 6B(3) which contains no saving clauses. If the Income-tax Officer had really invoked section 40A(3), the assessee was entitled to my that his case fell under the saving clauses or that he was entitled to the benefit of the circular. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the issues as to the disallowance or allowance for the purpose of computation of income chargeable under the head "Profits and gains of business or profession", is the mention of the general scheme under section 37(1) of the Act that any expenditure not being expenditure of the nature described in sections 30 to 36 and section 80VV, and not being of the nature of capital expenditure or personal expenses of the assessee, laid out or expended wholly and exclusively for the purposes of the business or profession will be allowed in computing the income chargeable under the head "Profits and gains of business or profession". All these expenses are enumerated in sub-sections (2), (2A), (2B) and sub-section (3) of section 37, the last being the mainstay of the contention of learned counsel who is appearing before us on behalf of the Revenue. This sub-section reads as follows : " Notwithstanding anything contained in sub-section (1), any expenditure incurred by an assessee after the 31st day of March, 1964, on advertisement or on maintenance of any residential accommodation including any accommodation in the nature of a guest house or in connection with travelling by an employee or an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of business or profession" in so far as the expenditure on advertisement or on maintenance of any residential accommodation is concerned. Since this is a special provision and this has been subjected to a clear restriction that any deduction will be allowed only to the extent and subject to such conditions as may be prescribed, full compliance with the requirements of rule 6B alone will enable the assessee to claim deduction of any expenditure on any advertisement. According to learned counsel appearing for the Revenue, section 40A has to be applied in cases which are not covered by the specific provisions of the Act like what is found in the items envisaged under various sections and sub-sections of the Act including section 37(3) of the Act. Sub-section (3) of section 40A and rule 6DD, according to him, for this reason alone, are not available to the assessee, who is not showing compliance with rule 6B(3). He has brought in support of his argument a judgment of this court in the case of CIT v. Carborundum Universal Ltd. [1977] 110 ITR 621. The assessee-company, Carborundum Universal Limited of the said case, claimed that it had contributed a sum of Rs. 17,575 to its United King ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ontribution's fixed on some definite basis by reference to the income chargeable under the head "Salaries" or to the contributions or to the number of members of the fund.' Section 37, with the marginal note 'general', states in sub-section (1) thereof : 'Any expenditure (not being expenditure of the nature described in sections 30 to 36 and not being in the nature of capital expenditure or 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".' As we have pointed out already, the Tribunal has taken the view that the expenditure involved in the present case is of a nature described in section 36(1)(iv) and, therefore, the residuary provision contained in section 37 will not be attracted. However, the Tribunal allowed the deduction under section 28 itself holding that any expenditure incurred for the purpose of carrying on business can be deducted for arriving at the true profits and gains of the business. The question for consideration is whether this conclusion of the Tribunal is correct or n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d in the judgment of this court (see [1977] 110 ITR 621) is not one which has taken notice of section 40A and accordingly it is not an authority laying down as contended by learned counsel for the Revenue that expenditure on advertisement which is covered by sub-section (3) of section 37 of the Act shall suffer the inhibition under the Rules and the assessee shall not be permitted to seek the protection under the proviso aforementioned. Rule 6DD of the Income-tax Rules, 1962, says : " No disallowance under sub-section (3) of section 40A shall be made where any payment in a sum exceeding two thousand five hundred rupees is made otherwise than by a crossed cheque drawn on a bank or by a crossed bank draft in the cases and circumstances specified" in it and has given a list of several payments. It is more or less provided in the language of sub-rule (3) of rule 6B, but it is one intended to carry out the purpose of the prescription under section 40A. Rule 6B has been retained, it seems, in particular to keep away those claiming deduction in the name of expenditure on advertisement that they should keep such expenditure in line with what is contemplated under sub-section (3) of se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h that are covered by the aforementioned proviso in section 40A(3) of the Act. Since this aspect of the case has not been examined, our answer to the first question is that the Income-tax Officer is not correct in disallowing Rs. 2,750 and Rs. 6,188 being advertisement expenses. He can do so only after giving to the assessee an opportunity to satisfy that it has not been able to make payments by crossed cheques drawn on a bank or by crossed bank drafts for the amounts spent by it on advertisement because bank facilities were not available to the extent required for such payment or for the reason of the expediency of business and other relevant factors, it made payments not by crossed cheques or crossed bank drafts. It will be open to the assessing authority to take into account the nature and extent of banking facilities available, consideration of business expediency and other relevant factors and if he is of the opinion that the expenditure is genuine and correct, can hold that there has been no negligence on the part of the assessee, which would disentitle it to the benefit of the proviso aforementioned. The reference is answered accordingly. Mr. N. V. Balasubramaniam, who has ..... X X X X Extracts X X X X X X X X Extracts X X X X
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