Om Prakash, J. - (1.) THIS court directed the Income-tax Appellate Tribunal under Section 256(2) of the Income-tax Act, 1961 (briefly, "the Act"), to draw up a statement of the case and refer the following questions at the instance of the Revenue for the opinion of this court for the assessment year 1970-71, the previous year for which was the calendar year 1969 : "1. Whether, on the facts and in the circumstances of the case, the Tribunal was correct in holding that the computation of admissible entertainment expenses under Section 37(2) be made with reference to the business income as a whole and not with reference to each unit of the business (sic) ?
(2.) WHETHER, on the facts and in the circumstances of the case, the Tribunal was justified in issuing general direction to the Inspecting Assistant Commissioner (Assessment) to compute deduction under Section 80J after ignoring the rules to the extent to which they are inconsistent with or are in conflict with the parent enactment ?" 2. The assessee-company in the relevant assessment year was engaged in the manufacture of rayon and textile goods. Besides having its main mill at Kanpur, the assessee had manufacturing units at Pondicherry, Udaipur, Mau Nath Bhanjan and Naini. First, we take up question No. 1 relating to entertainment expenses. The Assessing Officer held as under in this behalf : "The assessee has claimed a sum of Rs. 65,908 as entertainment expenses which includes a sum of Rs. 17,800 as messing charges. The returned income of the assessee before allowing development rebate amounts to Rs. 13,93,831. In view of the provisions of Section 37(2)(i) a sum of only Rs. 11,969 is permissible and balance of Rs. 53,998 is to be disallowed." The assessee appealed to the Appellate Assistant Commissioner and contended before him that the Assessing Officer should have considered the admissible claim for entertainment expenses in respect of each unit separately and that the method followed by the Assessing Officer resulted in total disallowance of the expenses, incurred in the manufacturing units. The assessee urged before the appellate authority that for each unit separate accounts are maintained ; separate balance-sheet and profit and loss account is drawn up and that each unit is independent and identifiable. It was also urged by the assessee that the Assessing Officer himself had computed the profits of each unit separately but for the purpose of finding out the extent of allowability of the claim of the entertainment expenses, he considered the overall income in the Kanpur unit. The submission was that when the profits of each unit were worked out separately, the claim of entertainment expenses should have been considered unitwise and not vis-a-vis the total income of the asses-see-company.
(3.) THE Appellate Assistant Commissioner rejected the contention of the assessee and concurred with the Assessing Officer. On further appeal, the Appellate Tribunal following its earlier order in the case of the assessee for the assessment year 1964-65 held that the entertainment expenses should have been worked out unitwise and not with reference to the total income of the assessee. In its order relating to the assessment year 1964-65, the Appellate Tribunal found as follows : "On a consideration of the facts of the case and the submissions made before us, we are of the opinion that the approach made by the Departmental authorities is inconsistent and contradictory. When separate accounts have been maintained for each unit and separate balance-sheets and profit and loss accounts have been drawn up and the Income-tax Officer himself has computed the profits of each unit separately, we fail to understand as to how only for entertainment expenses, the entire income is to be aggregated in Kanpur unit . . , Another aspect is that there can be various sources under the head business or for that matter of property. An assessee may be possessed of a number of immovable properties. While computing income from those properties, the Revenue would have to compute the same with reference to each property separately and allow deductions accordingly. In respect of each property, there would be a difference in the amount of tax payable and other statutory deductions. The entire income from all the properties cannot be aggregated before allowing deductions. In our opinion, the same is to be the approach in regard to various businesses carried on by an asses-see and particularly in a case where the different units are entirely independent and identifiable as in the present case ... In our opinion, therefore, the income of each unit is to be taken separately for considering the question of the allowance of entertainment expenses." ;