- (1.) FOLLOWING questions of law have been referred for the opinion of this Court by the Tribunal, Delhi Bench, 'E' Delhi, in ITA No. 1146/Del/1980 for the asst. yr. 1977 -78 and ITA Nos. 1146 and 2051/Del/1980 for the asst. yr. 1977 -78, arising "(i) Whether on the facts and circumstances of the case, the Tribunal was right in law in holding that sum of Rs. 77,211 contributed by the assessee company to the staff superannuation fund was not allowed as deduction in the assessment under consideration ? (At the instance of assessee). (ii) Whether on the facts and circumstances of the case, Tribunal was right in law in holding that sum of Rs. 44,194 contributed by the assessee company to the staff provident fund was not allowable as deduction in the assessment under consideration ? (At the instance of assessee). (iii) Whether on the facts and circumstances of the case, the Tribunal was right in law in holding that value of the perks provided to director, Shri Tapedar, in the form of user of assessee company's car had to be estimated independently and irrespective of the provisions of r. 3, IT Rules ? (At the instance of assessee). (iv) Whether on the facts and circumstances of the case, the Tribunal was right in law in holding that the value of perks provided to Shri Tapedar, in the form of personal user of assessee's car should be reduced from Rs. 21,500 to Rs. 13,000 (inclusive of car expenses and car depreciation) on account of such personal use of the car having been there only for five months during the previous year under consideration ? (At the instance of Revenue). (v) Whether on the facts and circumstances of the case, the Tribunal was right in law in holding that business promotion expenses were to the extent of Rs. 37,078 in the nature of the entertainment expenditure and as such disallowable under s. 37(2A) ? (at the instance of assessee). (vi) Whether on the facts and circumstances of the case, the Tribunal was right in law in holding that the legal expenses under consideration were subject to the ceiling laid down in s. 80VV, IT Act, ? (At the instance of assessee). (vii) Whether on the facts and circumstances of the case, the Tribunal was right in law in holding that in respect of the assessee's excise duty liability deduction was allowable in the assessment under consideration only to the extent of Rs. 16,36,386 ? (At the instance of assessee). (viii) Whether on the facts and circumstances of the case, the Tribunal was right in law in allowing deduction on account of excise duty on doubled yarn amounting to Rs. 10,66,306 claimed to be payable by the assessee but not actually paid ? (At the instance of Revenue). (ix) Whether on the facts and in the circumstances of the case, the Tribunal was right in law in sustaining the disallowance of two sums of Rs. 9,000 and Rs. 4,500 paid to Shri N. Nath and Shri K.C. Tapedar, respectively as commission ? (At the instance of assessee). (x) Whether on the facts and circumstances of the case, the Tribunal was right in law in deleting the addition of Rs. 81,000 which amount had been claimed by the assessee as commission payable to executive staff of the company ? (At the instance of Revenue). (xi) Whether on the facts and circumstances of the case, the Tribunal was right in law in directing that the commission payable to executive staff be treated as salary for the purposes of s. 40A(5) ? (at the instance of assessee). (xii) Whether on the facts and circumstances of the case, the Tribunal was right in law in allowing the relief of Rs. 8,30,444 to the assessee company on account of sales -tax ? (At the instance of Revenue). (xiii) Whether on the facts and circumstances of the case, the Tribunal was right in law in allowing deduction on account of contribution towards employee's provident fund ? (At the instance of Revenue). (xiv) Whether on the facts and circumstances of the case, the Tribunal was right in law in holding that the provision and expenses on telephones installed at the residences of directors and other senior executives of the company were not perquisites and those did not result into any benefit or amenity to them ? (At the instance of Revenue). (xv) Whether on the facts and circumstances of the case, the Tribunal was right in law in holding that only half of the expenses on telephones installed at the residences of the executives of the company can be treated as perquisite/facility for the purpose of s. 40A(5) ? (At the instance of Revenue). (xvi) Whether on the facts and circumstances of the case, the Tribunal was right in law in holding that the actual expenditure on providing facilities to the directors/employees should not be taken into consideration and the (xvii) Whether on the facts and circumstances of the case, the Tribunal was right in law in holding that reimbursement of medical expenses amounting to Rs. 38,649 should not be treated as a perquisite for the purpose of s. 40A(5) ? (at the instance of Revenue). (xviii) Whether on the facts and circumstances of the case, the Tribunal was right in law in holding that the rents of garages and servant quarters hired at residence of the directors is not a perquisite for the purpose of s. 40A(5) ? (At the instance of Revenue). (xix) Whether on the facts and circumstances of the case, the Tribunal was right in law in holding that the sum of Rs. 27,340 being interest -free loan to director, Shri N. Nath be not treated as a remuneration, amenity or benefit for the purpose of s. 40(c) ? (At the instance of Revenue). (xx) Whether on the facts and circumstances of the case, the Tribunal was right in law in holding that the expenditure incurred by the assessee company on Shri H.S. Ingham, chairman of the company while he was in Delhi cannot be made subject to the limits laid down in r. 6D(2)(b) ? (At the instance of Revenue). (xxi) Whether on the facts and circumstances of the case, the Tribunal was right in law in deleting the additional/disallowance of Rs. 8,605 by holding that payment to gratuity fund is allowable whenever made under s. 36(l) (v) notwithstanding the fact that it pertained to earlier years ? (At the instance of Revenue). (xxii) Whether on the facts and circumstances of the case, the Tribunal was right in law in holding that the sum of Rs. 21,675 paid to employees as house rent allowance cannot be treated as perquisite under s. 40A(5) ? (At the instance of Revenue). (xxiii) Whether on the facts and circumstances of the case, the Tribunal was right in law in holding that the assessee was entitled to depreciation on technical know -how capitalized by the assessee at Rs. 10,00,000 in the asst. yr. 1972 -73 ? (At the instance of Revenue). (xxiv) Whether on the facts and circumstances of the case, the Tribunal was right in law in allowing a deduction of Rs. 40,826 on account of contribution to gratuity fund ? (At the instance of Revenue)."
(2.) THE assessee derives income from manufacture and sale of industrial felts used in paper making industry. It filed its
(3.) THE AO disallowed certain claims of the assessee. Details thereof are as under : i) Re : Excise duty - -It debited the amount to P&L a/c as excise duty payable but the amount was not actually paid till the date of assessment. The assessee took the plea before the authorities that the excise duty was not payable. The AO disallowed deduction following judgments of the Hon'ble Supreme Court in Chowringhee Sales Bureau (P) Ltd. vs. CIT 1973 CTR (SC) 44 : (1973) 87 ITR 542 (SC) and Sinclair Murray and Co. (P) Ltd. vs. CIT 1974 CTR (SC) 283 : (1974) 97 ITR 615 (SC). It was held that deduction could not be allowed unless the amount was actually paid. The judgment of the Hon'ble Supreme Court in Kedarnath Jute Mfg. Co. Ltd. vs. CIT (1971) 82 ITR 363 (SC) was held to have been modified on the ground that judgments in Chowringhee Sales Bureau (P) Ltd.'s case (supra) and Sinclair Murray & Co. (P.) Ltd.'s case (supra) were later. (ii) Re : Sales -tax - -The assessee also claimed deduction in respect of sales -tax payable. Out of the said amount, sales - tax for the fourth quarter was actually paid after close of the year. The assessee was contesting the matter and on 3rd refundable. The AO disallowed the claim for deduction. The plea of the assessee that the amount was to be refunded to the customers was also rejected on the ground that the assessee had not actually refunded the said amount to the customers and if refund was made, the same could be allowed in the year in which it is actually refunded. (iii) Re : Contributions to PF/superannuation fund/gratuity fund - -The assessee also made a claim in respect of effective arrangement for deduction of tax at source under s. 40A(5) of the Act had been made but the assessee did not reply to the said query, stating that all the conditions had been complied with. The AO held that in trust deeds of the four funds, there was no mention of deduction of tax out of payments made from the said funds. It was held that since the assessee failed to comply with the provisions of s. 40(a)(iv), contributions to the funds during the year could not be allowed as deduction. It was further held that funds other than gratuity funds had not been approved for the year under consideration. Since the said funds were dealt with under s. 36(1)(iv) and (v) general provision of s. 37 could not be invoked. (iv) Re : Perquisites under s. 40A(5) - -The AO also disallowed expenditure on employees which was considered to be perquisites for s. 40A(5), following its order in respect of asst. yr. 1976 -77 which had been affirmed by the CIT(A). The said items are rent paid for housing of servants of the directors, house maintenance expenses of directors, value of perquisites in the hands of employees, expenditure incurred on running/maintenance of one car in the hands of directors which had been given for personal use, wages paid to personal servants of employees, rent of garage of the car used for personal use, depreciation on assets used for personal use of the directors/employees, reimbursement of medical expenses and house rent paid to employees. In respect of house rent allowance, it was observed that the assessee's appeal was allowed by CIT(A) but the Revenue had carried the matter to Tribunal. (v) Re : Commission paid to employees - -The AO also disallowed the claim for deduction in respect of commission paid to employees on the ground that the same could not be treated as part of salary for disallowance under s. 40A(5), The said amount was ex gratia payment without any commercial expediency. (vi) Re : Cost of interest -free loan to director - -Cost of interest -free loan provided to director, Shri N. Nath, was treated as perquisite. (vii) Re : Telephone for personal use - -Expenditure on telephones provided to employees of the company for personal use was disallowed under s. 40A(5)(a)(ii). (viii) Re : Tiffins to workers and lunches to officers and travelling expenses beyond r. 6D - -The AO also disallowed amount spent for providing tiffins to workers and lunches to officers of the Delhi office and factory. It was held that the expenditure was not for any commercial expediency. Part of the amount claimed for travelling expenses was disallowed, following assessment order for the previous year, beyond r. 6D. This item included expenses on fare which was not for business expenses, on tour to Delhi though the HQ was at London, expenses on per trip basis. (ix) Re : Payment to chartered accountant - -The AO also disallowed deduction in respect of payment made to AF Ferguson and Co., New Delhi, in connection with presentation of IT return and case before IT authorities in excess of statutory limit. (x) Re : Travelling expenses - -The claim of assessee for Rs. 10,000 towards travelling expenses was also disallowed in absence of details of travelling expenses incurred and time spent. (xi) Re : Advertisement expenses - -The claim of the assessee towards advertisement in souvenir of Indian National Congress and similar other expenditure on advertisement was disallowed in absence of production of souvenir or other proof. The CIT(A) partly allowed the appeal of the assessee in the following manner : "(a) Expenditure on maintenance of cars provided to S/Shri N. Nath and Tapedar, was partly allowed to the extent of Rs. 8,500 on the ground that Shri Tapedar had used the car only for five months. (b) Expenditure related to refreshments etc. to employees and staff was partly allowed to the extent of Rs. 6,000 on the ground that the said amount was referable to refreshments to business constituents. Reliance was placed on judgment of this Court in CIT vs. Gheru Lal Bal Chand 1977 CTR (P&H) 150 : (1978) 111 ITR 134 (P&H) (c) Claim of the assessee for professional fees and expenses was partly allowed. (d) Deduction in respect of excise duty and sales -tax was allowed following judgments in Kedarnath Jute Mfg. Co. Ltd.'s case (supra) and other judgments. (e) Claim was partly allowed with regard to commission paid to S/Shri N. Nath and Shri Tapedar, upto the limit under s. 40(c)/s. 40A(5). (f) Half of expenditure in connection with telephones installed at residence was allowed in absence of evidence that the telephones were used only for business and not for personal use. (g) Claim of house rent allowance was allowed. (h) Claim of the assessee for depreciation in respect of technical know - how was allowed.";