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TMI Blog2007 (3) TMI 291X X X X Extracts X X X X X X X X Extracts X X X X ..... ss for all the three years under appeal. Therefore, the appeals filed by the assessee are taken up for adjudication. ITA No. 7118/Mum./2002: Assessment year 1984-85: Assessee's appeal 2. Ground No. 1 taken by the assessee reads as under:- "1. (a) The ld. CIT(A) erred in confirming the disallowance made by the Assessing Officer under section 37(3A) of the Income-tax Act in respect of expenses of Rs. 3,35,408 reimbursed/paid to Advocates/Solicitors of the appellant. (b) The ld. CIT(A) ought to have held that expenses on hotel, car hire etc. incurred by Advocates/Solicitors for appellant's work at foreign stations could not be disallowed under section 37(3A) of the Income-tax Act, 1961." 3. The present assessment has been completed by the Assessing Officer under section 143(3)/263 pursuant to the directions issued by the ld. CIT in his order passed under section 263 on 20-2-1989 setting aside the original assessment with the direction to the Assessing Officer to frame a fresh assessment. The Assessing Officer has disallowed hotel expenses, car hire expenses and entertainment expenses aggregating to Rs. 3,35,408, being the expenses reimbursed/paid by the assessee on the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on customer services etc., were includible in direct cost incurred by the appellant in providing the services to passengers, in respect of which the appellant had recovered/charged fare to the passengers and as a consequence such expenses were outside the purview of provisions of section 37(3A) and as a consequence not disallowable under section 37(3A). 3. (a) The ld. CIT(A) erred in confirming the disallowance made by the Assessing Officer under section 37(3A) of Catering Expenses incurred by the appellant of Rs. 22,62,26,779. (b) The ld. CIT(A) ought to have held that such Catering expenses on passengers were includible in direct cost incurred by the appellant for providing the services to passengers in respect of which the appellant had charged/recovered fare from passengers and, hence, it was outside the purview of provisions of section 37(3A) of the Income-tax Act, 1961 and as a consequence not disallowable under section 37(3A). 4. (a) The ld. CIT(A) erred in confirming disallowance made by the Assessing Officer of Customer Services, Hotel expenses of Rs. 7,96,19,947. (b) The ld. CIT(A) ought to have held that such expenses on hotel were includible in direct cost ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of this Tribunal in Ramnath Exports (P.) Ltd. v. ISE [1992] 42 TTJ (Delhi) 441 and Nelco India (P.) Ltd. v. ITO [1991] 36 ITD 224 (Delhi). 8. In reply, the ld. Departmental Representative supported the order passed by the CIT(A) confirming the impugned disallowances. 9. We have heard the parties. The assessee is engaged in the business of carrying passengers on its international flights. The assessee is required to provide certain facilities to its customers as all other International Airlines provide. However, the departmental authorities have taken the view that the impugned expenses are sales promotion expenses and thus hit by section 37(3B) of the Income-tax Act. Perusal of section 37(3B)(i) of the Income-tax Act, as it existed at the relevant point of time, shows that the expenses covered by the said provisions are those, which are incurred by the assessee by way of "Advertisement, publicity and sales promotion". The expression "sales promotion" used in section 37(3B)(i) has not been defined anywhere in the Income-tax Act. Section 37(3B) was enacted with a view to curbing certain categories of avoidable or ostentatious expenditure by the assessees carrying on business or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ities which the assessee deals in or provides in the course of his business. There is no doubt that the assessee is a domestic company. Even if the impugned expenses are held to be in the nature of sales promotion expenses, the provisions of section 37(3A) would be inapplicable in view of the bar created by section 37(3C) of the Income-tax Act. It is not in dispute that the assessee is an international carrier and has incurred the impugned expenses outside India to provide certain services to its passengers in the course of its ordinary business. 11. The view that we have taken in the matter is also supported by the decisions referred to by the ld. Authorized Representative for the assessee. In view of the aforesaid, the order of the CIT(A) confirming the impugned disallowances is vacated. Ground Nos. 2, 3 and 4 are allowed. 12. Appeal filed by the assessee is allowed. ITA No. 7119/Mum/2002: Assessment year 1985-86: Assessee's appeal 13. Ground No. 1 taken by the assessee reads as under:- "1. (a) The ld. CIT(A) erred in confirming the disallowance made by the Assessing Officer under section 37(3A) of Hotel expenses on passengers of Rs. 8,21,55,356. (b) The ld. CIT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oyment outside India. The question of period of employment outside India will arise only where under the terms of employment an employee is required to spent a specific period outside India. Disallowance of Rs. 6 lakhs, on estimate basis, is made on this account." 17. On appeal, the CIT(A) has confirmed the impugned disallowance. 18. We have heard the parties and considered their submissions. The impugned disallowance has been made on ad hoc basis under section 40A(5)(a) after rejecting the submission of the assessee that its case was covered by section 40A(5)(b)(i). The assessee has global presence. Its employees are subject to posting abroad or at places within India in terms of their contracts of employment and in the exigencies of business. The mere fact that they were deputed for a short period would not take the case away from the purview of section 40A(5)(b)(i). Even shorter period of deputation of an employee outside India would constitute "any period of his employment outside India" within the meaning of section 40A(5)(b)(i). In this view of the matter, ground No. 2 is allowed. 19. Ground No. 3 reads as under:- "3. (a) The ld. CIT(A) erred in not accepting the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e mentioned that the CIT(A), after holding that section 43B is applicable to foreign travel tax, has deleted the disallowance with the following observations:- "5.2....However, as regards the application of proviso attached to the aforesaid section with effect from 1-4-1988 is concerned the Apex Court has held that the same is clarificatory in nature and should be applicable retrospectively. In view of this fact, the Assessing Officer is directed to verify the appellant's claim that the same were paid prior to the date allowed under section 139(1) of the Income-tax Act and may allow the claim accordingly. Whereas in case of Ceylon Turnover tax the Hon'ble ITAT has in the appellant's own case has decided that the provisions of section 43B are not applicable for the outstanding liabilities of foreign taxes. As such the additions in this regard are hereby deleted." 23. The aforesaid direction of the CIT(A) is the subject-matter of appeal as ground No. 3 in department's appeal for assessment year 1985-86. We are, therefore, not expressing any opinion on the aforesaid part of the order of the CIT(A) while disposing of the ground of appeal taken by the assessee. 24. In view of t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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