- (1.) A common question was referred by the Tribunal under S. 256(1) of the IT Act, 1961, referred to as ("the Act"), for our decision. The question formulated above is in the following manner : "Whether, on the facts and in the circumstances of the case and on a proper interpretation of S. 37 (3A) r/w sub -s. (3B) and the Expln. (c) below sub -s. (3B), the Tribunal was right in law in holding that the expenditure on metered taxies was not hit by the aforesaid section -
(2.) THE assessment years with which we are concerned in these cases are 1985 -86 and 1986 -87. General Electric Company of India Ltd. is the assessee. While computing the income of the assessee, the CIT found that the assessee had incurred a sum of Rs. 1,48,584 by way of expenditure on public taxies (metered taxies) when the employees of the assessee were on tour. The CIT noticed that the expenditure had not been taken into account for the purpose of making disallowance under S. 37(3A) of the Act. He was of the view that inasmuch as the expenditure had not been included in the expenditure to be considered for disallowance under S. 37(3A), the assessment was erroneous and prejudicial to the interests of the Revenue. He, therefore, directed the ITO to include the aforesaid expenditure in that amount to be considered for disallowance under S. 37(3A) of the Act. On appeal, the Tribunal held that the expenditure on metered taxies was not hit by S. 37(3A) of the Act. On the aforesaid findings, the Tribunal had referred the question formulated above for our opinion. In this case, the short question that arises for our consideration is whether the expenditure incurred on hiring metered taxies had to be disallowed under S. 37(3A) of the Act as it stood at the relevant point of time. Mr. Mallick, appearing on behalf of the Department, contended before us that the expenditure incurred by the assessee on metered taxies will fall under the provision of S. 37(3A) of the Act r/w s. 37(3B) and Expln. (c) as the language of S. 37(3B) would clearly indicate that the expenditure incurred by the assessee on metered taxies would fall under that section. In support of his contention, Mr. Mallick relied on the decision of the Karnataka High Court in the case of Karnataka State Financial Corpn. vs. CIT (2000) 160 CTR (Ker) 35 : (2000) 242 ITR 623 (Ker). The submission of Mr. Mallick was hotly contested by Dr. Pal, appearing on behalf of the assessee. Dr. Pal submitted that the decision referred to by the learned senior advocate for the Department, i.e., Karnataka State Financial Corpn. vs. CIT (supra), cannot be said to have any application in the present case as it would be evident from the facts of that decision that the expenditure incurred by the employer by way of conveyance allowance, would fall within the provisions of S. 37(3A) of the Act. Dr. Pal submitted that in the present reference cases this was not the position. As noted hereinabove, Dr. Pal contended that the question that was raised in the aforesaid Karnataka High Court decision was whether the expenditure incurred by an employer by way of conveyance allowance would fall within the provision of S. 37(3A) of the Act whereas in the present reference cases the question that would be decided is whether the expenditure incurred on metered taxies would fall within the purview of S. 37(3A) r/w S. 37(3B) and Expln. (c) of the Act. According to Dr. Pal, the expenditure incurred on metered taxies comes within the purview of S. 37(3A) r/w S. 37 (3B) of the Act as the Expln. (c) indicates clearly that such an expenditure cannot fall within the purview of the aforesaid sections. In this connection, Dr. Pal relied on two Division Bench decisions of the Bombay High Court, the first of which has been reported in CIT vs. Mahindra Ugine & Steel Co. Ltd. (2001) 170 CTR (Bom) 198 : (2001) 250 ITR 696 (Bom) and the other reported in CIT vs. Indian Hume Pipe Co. Ltd. (2001) 250 ITR 592 (Bom). In order to show that the expenditure incurred on metered taxies would not fall within the disallowance under S. 37(3A) r/w S. 37(3B) of the Act, Dr. Pal had drawn our attention to the statute being (1983) 33 CTR (TLT) 11, 71 : (1983) 140 ITR (St) 25, 156 [memorandum explaining the provisions of the Finance Bill, 1983 -Ed.], in which it has been stated that the expenditure on chartering aircraft or the hire charges for engaging private taxies and on payment of conveyance allowance to employees and directors will be taken into account for the purpose of this disallowance. Accordingly, Dr. Pal submitted that the question formulated above must be answered in favour of the assessee and against the Revenue.
(3.) HAVING heard the learned advocates appearing for the parties and after considering their respective submissions as noted hereinabove, we are of the view that before we come to a conclusion on the question mentioned above we must take into consideration the relevant provisions of the Act with which we are concerned in this case. Chapter IV deals with computation of total income. Clause D of this Chapter deals with profits and gains of business or profession. Secs. 30 to 36 of the Act deal with instances' where assessees are entitled to deduction. Sec. 37 is a general provision. It says that any expenditure (not being expenditure of the nature described in ss. 30 to 36 and not being in the nature of capital expenditure or personal expenses of the assessee) laid out or expended wholly or exclusively for the purposes of the business or profession shall be allowed in computing the income chargeable under the head "Profits and gains of business or profession". Sec. 37(3A) of the Act as on 1st April, 1984, runs as under : "(3A) Notwithstanding anything contained in sub -s. (1), where the expenditure or, as the case may be, the aggregate expenditure incurred by an assessee on any one or more of the items specified in sub -s. (3B) exceeds Rs. 1,00,000, 20 per cent, of such excess shall not be allowed as deduction in computing the income chargeable under the head 'Profits and gains of business or profession'." ;