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TMI Blog1982 (2) TMI 118X X X X Extracts X X X X X X X X Extracts X X X X ..... of the rent claimed at Rs.6,015 on account of the rent of the portion of the business premises used by Sh. Kishori Lal, one of the seven partners, and ground No.2 is regarding disallowance of Rs.800 out of the telephone expenses claimed at Rs.12,047 on account of partial use of the telephone by Sh. Kishori Lal, Partner, who happened to reside in the business premises. Ground Nos. 3 and 5 are in respect of disallowance of Rs. 2,400 out of the expenditure on cars and jeeps and disallowance of Rs. 3,723 out of depreciation account of personal use of the cars and jeeps by Sh. Kishori Lal, Partner, which were confirmed by the CIT (Appeals). The sixth and the last ground which need to be adjudicated, is in respect of separate allocation of income of Rs. 724 on account of dividend and of Rs.2,460 on account of interest on FDRs, which was denied by the lower authorities. 4. For the sake of convenience, we shall be first taking up ground Nos. 1, 2, 3, and 5 together. At the very outset, while dealing with the disallowance in respect of rent, telephone and a part of cars and jeeps expenses and part of depreciation thereon the ld. counsel for the assessee was fair enough to admit that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cars and as a matter of fact and as a practical proposition the use of personal cars of the partners for the benefit of the firm also cannot be denied. He, therefore, argued that no disallowance either on account of rent, telephone, maintenance and running of cars and jeeps and depreciation thereon should have been made. 5. The ld. Deptl.Rep., Sh.R.S.Khichi, on the hand, besides relying on the order of the CIT(Appeals) vehemently argued that in the light of s. 37 and 38 of the Act the disallowances were in order and the same deserve to confirmed even in the light of the Tribunal decision on this issue in the assessee's own case pertaining to immediately preceding year. In support of his contention he took us through the commentary of Chaturvedi Pithisaria's 1976 Edn.734. 6. After taking into consideration that rival submissious, we are unable to confirm the order of the CIT (Appeals) in respect of all the four disallowances made by him, viz. rent. telephone, expenses on cars and jeeps and depreciation thereon. Undoubtedly, the firm was constituted of seven partners out of whom only one Sh.Krishori Lal resided in the business premises taken by the firm on rent. It was he alo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t assessable entity. Section 3 of the Indian Income-tax Act, 1922, treats it as such and the entire process of computation of the income of a firm proceeds on the basis that it is a distinct assessable entity. In that respect, it is distinct even from the partners". Their Lordships of the Supreme Court in the case of Chandulal Keshavlal Co. while dealing with the issue pertaining to remitting a part of the Commission of the assessee as a managing agent to the managed company which were through two separate units but had relationship, as in the instant case, the assessee being a partnership firm and the gentleman in respect of whom the rent, telephone and expenses on cars and jeeps are sought to be disallowed is a partner, observed as under: "that as the appellate Tribunal had found that the amount was expanded for reasons of commercial expediency, and was not given as a bounty and to strengthen the managed company so that if the financial position of the managed company became strong the assessee would benefit thereby, the Appellate Tribunal rightly came to the conclusion that it was a deductible expense under section 10(2) (xv). If the expense is incurred for fostering the bu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t and if the same is to be apportioned then s.38 and similarly in respect of apportionment of expenses and depreciation on cars and jeeps s. 38 whereas for expenses of general nature it is s. 37, for which we extract and place the same as under; "Section 30-In respect of rent, rates taxes, repairs and insurance for premises, used for the purpose of the business or profession, the following deductions shall be allowed: (a) where the premises are occupied by the assessment: (i) as a tenant, the rent paid for such premises; and further if he has undertaken to bear the cost of repairs to the premises, the amount paid on account of such repairs; (ii) Otherwise than as a tenant, the amount paid by him on account of current repairs to the premises". Regarding apportionment of rent in respect of building or cars and jeeps not exclusively used by the assessee, we like to notice s. 38 of the Act which runs as under: Sec. 38(1) where a part of any premises is used as dwelling house by the assessee; (a) the deduction under sub-cl. (i) of cl. (a) of s. 30, in the case of rent, shall be such amount as the ITO may determine having regard to the proportionate annual value of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... business promotion, the expenditure would be one incurred wholly and exclusively for the purposes of the assessee's business even though some other object necessarily results, being inherent in the nature and quality of the expenditure. The expression 'Commercial Expediency' is not limited to an existing practice prevailing in any particular trade or business. Even if the incurring of a particular expenditure may not be supported by any prevailing practice, yet, if, at any time when the expenditure is incurred, commercial expediency justifies it, the expenditure would be taken to be for the purposes of the business. 12. The Calcutta High Court in the case of Indian Steel and Wire Products Ltd. vs. CIT (1968) 69 ITR 379 (cal) has expressed the view that the expression commercial expediency is not a term of art and it means everything that serves to promote commerce and includes every means suitable to the end. In the case of Shree Minakshi Mills vs. CIT (1967) 63 ITR 207 (SC), the Supreme Court held that u/s 10(2)(xv) of the Indian IT Act, 1922, as amended by Act 7 of 1939, expenditure even though not directly related to the earning of income may still be admissible as a deducti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) 3 WLR 833 (CA). These observations were also quoted with approval by the Supreme Court in Eastern Investments Ltd. vs. CIT (1951) 20 ITR 1 (SC), and CIT vs. Chandulal Keshavlal and Co. (1960) 38 ITR 601 (SC), which has been dealt above. 15. So in deciding whether a payment of money or incurring of expenditure is for the purposes of the business and as allowable expenditure, the test applied is of commercial expediency and principles of ordinary commercial trading. If the payment or expenditure is incurred to facilitate the carrying on of the business of the assessee and is supported by commercial expediency, it does not matter that the payment is voluntary or that it also ensures to the benefit of third party. If the sole object is business promotion, the expenditure would still be wholly and exclusively for the purposes of the assessee's business even though some other object necessarily results, being inherent in the nature and quality of the expenditure. In Travancore Titanium Products Ltd. vs. CIT (1960) 60 ITR 277 (SC), the Supreme Court has held that: "The nature of the expenditure or outgoing must be adjudged in the light of accepted commercial practice and trading p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to concentrate on the facts of the decided cases with a view to match the colour of that case with that of the case which requires determination. The surer way of arriving at a just conclusion would be to first ascertain by reference to the document under which the obligation for incurring the expenditure is created and thereafter to apply to principle emblemed in the decisions on those facts. Judicial statements on the facts of a particular case can never assist courts in the construction of an agreement or a statute which was not considered in those judgments or to ascertain what the intention of the legislature was. What we must look at is the contract or the statute or the decree in relation to its terms, the obligation imposed and the purpose for which the transaction was entered into." 16. It may be noted that the expenditure, must, in some way, be connected with trade, it must be an ordinary or contemplable incident of trade. There must be a discerrible nexus between the expenditure and the trade. There must be something commercial about it. In fraction of law, including breaches of obligation, are not normal incidents of business and penalties and damages paid in connect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... jeeps. 18. Before we part with the issue, we may mention that as no personal use of office cars and jeeps is denied in the light of the fact that each of the seven partners owned his own car, we would have sustained some disallowance but as asserted by the ld. counsel for the assessee that if once in a while business transport is used for personal purposes of the partners, similarly personal transport of the partners is also used for business purposes of the firm, and it is on the basis of this that we have deleted the entire disallowance. 19. The last ground is: "The ld. CIT (A) has erred in rejecting the following ground of appeal taken by the appellant before him: The ld. ITO erred in not separately allocating the income of Rs. 724 on account of dividend and income of Rs. 2,460 being income from interest on FDRs inasmuch as the income allocated to each partner out of this income is exempt in his or her hands". From perusal of the order of the CIT (Appeals), we find that in respect of this contention he found the reliance of the authorised representative for the assessee on the Chandigarh Bench decision in the case of Raj Kumar and decision of the Allahabad High Co ..... X X X X Extracts X X X X X X X X Extracts X X X X
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