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TMI Blog1981 (9) TMI 89X X X X Extracts X X X X X X X X Extracts X X X X ..... of Rs. 35,958. According to the ITO, the amount in excess of Rs. 15,557 was required to be disallowed, and the same was accordingly disallowed. The amount disallowed came to Rs. 20,401. For the next year, the assessee had claimed entertainment expenditure in the amount of Rs. 30,000. The ITO only allowed the same in the amount of Rs. 7,431 . We are concerned in this reference with the two disallowances. It may be pointed out that the aggrieved assessee carried the matter in appeal to the AAC. One of the items of which complaint was made in the said appeal was as regards the disallowance of the entertainment expenditure. The AAC noted in his order that no reason for the disallowance had been given by the ITO in his order. The ITO had remained present before the AAC, and he was presumably asked orally to indicate the basis of the disallowance, and this is what the AAC has noted in his order for the above assessment years: " The ITO noticed that the appellant claimed entertainment expenses at Rs. 35,958 and he allowed Rs. 15,557 only out of the total claim. The ITO has not given any reason for the disallowance. Apparently, there seems to be no dispute that the expenses were inc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Income from own business 15,36,081 2,92,572 Share of income from joint venture partnership 45,77,299 48,58,506 Dividends, interest on securities and capital gains 38,992 47,303 ------------------- ------------------ Total income 61,52,372 51,98,381 " ------------------- ------------------ It seems to be the obvious position that the assessee's income from dividends, interest on securities and capital gains for the two years under consideration, namely, Rs. 38,992 and Rs. 47,303, will be required to be excluded. This has not been disputed by Shri Dastur. The question, however, which is required to be seriously considered is whether the limit prescribed by s. 372) is to be calculated on the profits and gains of the wholly-owned business of the assessee-company, namely, Rs. 15,36,081 and Rs. 2,92,572, respectively, or Whether the share of the income received by the assessee-company from the joint venture partnerships, which income comes to substantial amounts in the two years under consideration, is also to be considered. It is necessary, in our opinion, to set out in the first place the provisions of s. 37 of the I.T. Act, 1961. It reads as under " 37. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ve in cls. (i), (ii), (iii) and (iv) prescribing the percentages for calculating the limits of allowable entertainment expenditure. It is further to be borne in mind that the same phrase " the business " also occurs in s. 37(1) where we have a provision for allowance of expenditure " laid out or expended wholly and exclusively for the purposes of the business or profession ". Now, s. 14 of the I.T. Act, 1961, deals with heads of income and head D " deals with profits and gains of business or profession. It is true that the article " the " is not to be found in the said section. Profits and gains of business or profession are further explained by s. 28 of the said Act where it is provided, inter alia, that profits and gains of business or profession will include the profits and gains of any business or profession which was carried on by the assessee at any time during the previous year. What is the significance to be attached to the departure from the phraseology employed in s. 28 where business was prefixed with the word " any " and the substitution of the said word by the word " the " in s. 37 ? Will this change warrant the view taken by the Tribunal that the business would mea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the partnership business carried on by the assessee along with some other partner, even though the said partnership is a registered firm and thus separate taxable entity. It is not permissible to give this interpretation to the statutory provision by considering what the object of the section was and whether the same would be defeated or furthered by the interpretation to be put. The words used are " the business ". It would appear from a perusal of the returns and the orders that the assessee earned an income of Rs. 15,36,081 from the construction business which was wholly owned by it (for the assessment year 1963-64), and for the very same year it earned Rs. 45,77,299 as its share of income from joint venture partnership from similar construction work. The latter business, however, was not wholly owned by the assessee but were either partnerships or joint ventures. According to the Supreme Court, as per its observations in Ramniklal Kothari's case [1969] 74 ITR 57, both these are businesses of the assessee and hence both the incomes must be regarded as its business income. The words occurring in section 37(2)(i), namely, " on the first Rs. 10,00,000 of the profits and gains of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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