V.K. Singhal, J. - (1.) THE Income-tax Appellate Tribunal has referred the following two questions of law arising out of its order dated June 17, 1979, in respect of the assessment year 1975-76 : "1. Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the amount of Rs. 15,865 incurred on the construction of one fountain at Urban Improvement Trust Circle, Jaipur, was a business expenditure and it could not be considered as a capital expenditure ?
(2.) WHETHER, on the facts and in the circumstances of the case, the Tribunal was justified in deleting the addition of Rs. 9,619 made by the Income-tax Officer on account of interest on debit balance in the accounts of the partners ?" 2. The brief facts of the case are that the assessee has claimed an expenditure of Rs. 15,865 in respect of construction of a fountain at Urban Improvement Trust Circle at Jaipur as advertisement expense. The Income-tax Officer was of the opinion that such a huge expenditure at a place which is far off (about 5 kilometres from the place of business of the assessee) and at a secluded place was not at all essential for attracting business expediency. It was held that the expenditure was in the nature of capital expenditure and it being permanent structure, the claim was disallowed. In respect of adding of interest while examining the building loan account, the Income-tax Officer has found that there was an opening debit balance of Rs. 1,18,442. This amount belonged to two of the partners, namely, Shri Daya Nidhi and Shri Ish Nidhi, who have taken this loan for construction of a joint property. There was credit balance in the account of Daya Nidhi as well as Ish Nidhi and, after adjusting the same, it was found that the net debit balance of Rs. 56,221 was in the account of Daya Nidhi and Rs. 31,221 in the account of Ish Nidhi which is liable to interest at one per cent. per month in accordance with Clause 6 of the partnership deed dated April 7, 1974. The said clause reads as under : "That no interest shall be paid to any partner on his credit balance in the books of the firm. But in the case of debit balance, interest at one per cent. per month shall be charged by the firm on the amount standing to his debit." The Income-tax Officer charged interest on the said amount and added it to the income of the firm and levied tax thereon. Against this order, an appeal was preferred to the Appellate Assistant Commissioner and it was submitted that the fountain was constructed with a view to advertise the products in which the firm is dealing. It was also pointed out that a board showing the name of the firm and the names of the product was also put up near the fountain constructed by the firm. The Appellate Assistant Commissioner was of the view that the construction of the fountain was at the instance of U. I. T., Jaipur, and was done for the beautification plan of the traffic islands undertaken by the Urban Improvement Trust, The Appellate Assistant Commissioner came to the conclusion that the said fountain was constructed by Shri K.C. Kasliwal on behalf of the firm and that there is no element of publicity or advertisement involved in the said project. Similarly, the board affixed does not help the assessee to prove that it was an expenditure in the nature of advertisement. The amount spent on the construction of the fountain was held as not connected with the business of the firm and the disallowance was upheld. Regarding charging of interest on the debit balance of the two partners, the same was upheld in view of Clause 6 of the partnership deed.
(3.) AGAINST this order, the second appeal was preferred to the Income-tax Appellate Tribunal, Bombay Bench 'D' Camp, Jaipur. The Tribunal came to the conclusion that the expenditure has resulted in beautification of the traffic island and the assessee had incurred this expenditure in order to advertise the name of the firm and the products of the business which was carried on. The firm had incurred this expenditure in the course of carrying on its business and it was not in the nature of a personal expenditure incurred by the firm or its partners. It was found that there are many subtle ways in which advertisement and publicity is carried on in these days and the present case is one of the ways in which a businessman advertises his business and tries to improve its public image so as to result in better outturn in his business. It was found that a plaque in the traffic island was put up which showed that the same was constructed with the co-operation of the assessee-firm. The expenditure was held to be business expenditure and the addition was deleted. In respect of interest, it was held that on the debit balance, no interest was charged in the past and it is not shown that any borrowed capital had been diverted to this joint account without payment of interest. The contention of the assessee before the Tribunal was that no connection between the interest-bearing loan taken by the assessee and the debit balance in the joint account has been proved and there was huge deposit for booking of the vehicles which was not bearing any interest. The Tribunal held that it was open to the assessee to use the deposits issued at the time of booking of the vehicles in any manner and the assessee could not be compelled to charge interest on such advances as the deposit itself did not bear any interest. The interest, was accordingly, deleted. The submission of learned counsel for the Revenue is that the expenditure is not a business expenditure but was a capital expenditure and that the interest was payable on the debit balance in accordance with the terms of the partnership deed. The submission of Mr. Kasliwal on behalf of the respondent is that whether the expenditure is capital or revenue in nature is not relevant for the purpose of determining as to whether the expenditure is on advertisement and for that purpose reliance was placed on the decision of the Himachal Pradesh High Court in Mohan Meakin Breweries Ltd. v. CIT (No. 1) [1979] 118 ITR 101. Reliance was also placed on the judgment of the Bombay High Court in Godavari Sugar Mills Ltd. (No. 1) v. CIT [1991] 191 ITR 311, wherein it was held that the mere fact that the expenditure was also motivated by charity would not justify any disallowance. ;