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TMI Blog1980 (10) TMI 39X X X X Extracts X X X X X X X X Extracts X X X X ..... e of the revenue that the said expenditure did not relate to the business of the assessee are without any evidence or material on record and contrary to the material on record ? " In order to appreciate the nature of the controversy between the parties in the present proceedings, it is necessary to have a look at a few relevant facts. The assessee is a limited company. It derives income mainly from property. It also derives income from utilisation of a weighing machine. The assessee claimed an expenditure of Rs. 40,323 on account of salary, telephone, stationery, printing, auditors' fees and other miscellaneous expenses as allowable deductions under s. 37 of the I.T. Act from the income from weighing machine. The ITO found that the aforesaid expenditure of Rs. 40,323 cannot be said to have been incurred wholly for the purpose of the business and, therefore, a portion of the expenditure to the extent of Rs. 4,032, being 1/10th of the expenditure, was allowed. The balance of the expenditure was treated by the ITO as having been incurred for the assessee's other activities.. The ITO noted that the assessee had income from the weighing machine as well as substantial income from p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re expenses ought to have been allowed as permissible deductions under s. 37 of the Act. While considering the aforesaid submission on behalf of the assessee, the AAC found that the entire expenditure certainly could not be described as pertaining to the business of using the weighing machine to earn weighing charges. He, however, felt that it would be more appropriate to ascertain those expenses which pertained clearly to the weighing machine business and to allow the same as deduction against business income. Thereafter, the AAC proceeded to examine each of the items comprising of the total expenses of Rs. 40,323 as claimed by the assessee as permissible deductions and ultimately came to the conclusion that the total admissible expenditure permissible under s. 37 in connection with the weighing machine business would come to Rs. 6,856. The break-up of this amount is as under: Rs. Salaries 5,570 Printing charges, 184 1/10th of legal exp. 215 1/10th of audit fees 60 1/10th of other miscellaneous expenses as above 827 ---------- 6,856 ---------- The AAC accordingly allowed Rs.6,956 as against Rs. 4,032 allowed by the ITO. The assessment was according ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... correct. Thus, in substance, the entire claim of the assessee for the grant of deductions of Rs. 40,323 by way of permissible expenditure under s. 37 of the Act was granted by the Tribunal. Thereafter, the Commissioner attempted, unsuccessfully, to get a few questions of law referred to this court under s. 256(1) of the Act by the Tribunal. Ultimately, the Commissioner could persuade this court to get three questions of law referred to us for our opinion by the Tribunal in the proceedings which the Commissioner took before this court under s. 256(2) of the Act. Pursuant to the direction of this court in the aforesaid proceedings, the Tribunal has referred three questions of law for our opinion in the present, proceedings. These questions have already been extracted in extenso in the earlier part of this judgment. Mr. N. U. Rawal, learned advocate appearing for the revenue, contended that the Tribunal has really not applied its mind to the real question in controversy between the parties. That the Tribunal proceeded only on the basis of the Supreme Court judgment in Maharastra Sugar Mills case [1971] 82 ITR 452 and without going into the further question as to whether any part of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n be granted as a permissible expenses for the purpose of business as per the requirement of s. 37 of the Act, it must be established that the concerned expenditure was not in the nature of capital expenditure or personal expenses of the assessee and were laid out or expended wholly and exclusively for the purposes of the business in question. As during the relevant accounting year, the assessee carried on business of weighing machine and had one weighing machine for it, if the assessee could show that the entire claim of permissible deductions under s. 37 referred to the expenses which were laid out or expended wholly and exclusively for the purposes of the weighing machine business, then -the said claim could be granted under s. 37. In the present case, as noted by the ITO and the AAC, the total income of the assessee was comprised of the main two heads, (1) property income, and (2) income from the weighing machine business. Hence the question of apportionment of expenses qua these two heads of income necessarily arises for consideration. As laid down by this court in Gujarat Ginning and Mfg. Co. Ltd. v. CIT [1977] 107 ITR 590, an effort has to be made to apportion expenses for d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e question regarding permissible expenses to be deducted from the total income for the purposes of computation of the taxable income, the expenses have to be apportioned headwise in connection with the income arising under the concerned heads. In the present case, therefore, the Tribunal was required to go into the question as to what extent of the total expenses of Rs. 40,323 which were claimed to be permissible deductions by the assessee, as per s. 37 of the Act, was actually referable to the weighing machine business. Only after arriving at the finding on this aspect and on deciding as to whether the concerned expenses were laid out or expended wholly and exclusively for the purposes of the weighing machine business during the relevant assessment year that the question of permitting the said expenditure as permissible expenditure would arise. Unfortunately the Tribunal has not addressed itself to this main question in controversy between the parties and instead, with respect, has sidetracked the main issue perhaps overawed by the observations of the Supreme Court in Maharashtra Sugar Mills'case [1971] 82 ITR 452, which are found to have no bearing on the present case. Mr. Rawal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he AAC has already allowed Rs. 6,856 by way of permissible deduction to the assessee being the amount which, according to the AAC, was directly referable to the weighing machine business. The Tribunal will have, therefore, to go into the real and the only question in controversy between the parties which now survives as to whether out of Rs. 25,302 by way of permissible expenditure, what part of this claim is referable to the business of weighing machine which was run by the assessee during the relevant accounting year and which was laid out or expended wholly and exclusively for the purpose of the said business. Of course, the assessee will be entitled to urge before the Tribunal that while deciding this question, that part of the expenditure which the assessee had to incur for running the company and which part was directly or indirectly referable to the weighing machine business can also be included as permissible expenses for the purpose of the weighing machine business as required by s. 37. The Tribunal will have, therefore, to reconsider the entire question afresh in the light of the observations made by us in this judgment. As a result of the aforesaid discussion, our answer ..... X X X X Extracts X X X X X X X X Extracts X X X X
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