COMMISSIONER OF INCOME TAX Vs. NATH BROTHERS EXIM INTERNATIONAL LIMITED

JUDGEMENT

(1.) AT the instance of the Revenue, in respect of the asst. year 1981 -82, the following questions have been referred by the Income -tax Appellate Tribunal (for short the "Tribunal") under S. 256(1) of the Income -tax Act, 1961 (for short "the Act"), for the opinion of this Court :

(2.) THE assessee is a limited company, engaged in the business of export of garments and handicrafts. The relevant accounting year ended on 31st March, 1981. The assessee applied for an industrial shed in the industrial complex developed by the Delhi State Industrial Development Corporation Ltd. (for short "the DSIDC") and deposited a sum of Rs. 10,000 as security deposit, earnest money and advance for power connection charges, etc. As the DSIDC was to provide only the boundary wall, the assessee constructed wooden cabins, etc., and spent Rs. 48,000 on this account. Ultimately, the DSIDC did not allot the shed to the assessee, which action of the DSIDC was unsuccessfully challenged by the assessee. According to the statement of the case, in the final accounts for the relevant assessment year, the assessee claimed the said amount of Rs. 58,000 as business loss. While framing the assessment for the relevant assessment year, the AO disallowed the same on the ground that it was a capital loss. Aggrieved, the assessee preferred an appeal to the CIT(A), but the same was unsuccessful. While deciding the issue against the assessee, the CIT (A) observed that both the deposit as well as the expenditure incurred on the construction of cabins/shed had been laid out in the financial year ending 31st March, 1976, and had not been treated as revenue expenditure; both the items appeared in the balance sheets of the assessee as on 31st March, 1977, 31st March, 1978, 31st March, 1979, and 31st March, 1980, and were transferred to the P&L A/c only during the relevant previous year; and the expenditure having been incurred well before the beginning of the period relevant to the assessment year in question, under no principle of accountancy could it be taken into consideration for computing total income for the relevant accounting period, namely, the year ended 31st March, 1981. Having held so, the CIT(A) did not go into the question whether the expenditure was of revenue or capital in nature. The assessee carried the matter in future appeal to the Tribunal. The Tribunal, without going into the aforenoted issue decided by the CIT(A) and placing reliance on the decision of the Supreme Court in Empire Jute Co. Ltd. vs. CIT (1980) 17 CTR (SC) 113 : (1980) 124 ITR 1 (SC) : TC 16R.953, held that since the assessee had not received any benefit in the capital field, it was entitled to the deduction of the said amount.

(3.) THE second question relates to the claim made by the assessee for weighted deduction under s. 35B of the Act in respect of the hospitality expenses incurred by the assessee in entertaining its foreign buyers. Weighted deduction on the said amount was declined by the AO. The CIT(A) affirmed the view taken by the AO. In further appeal to the Tribunal, relying on the Special Bench decision of the Tribunal in J. Hem Chand & Co. 1 SOT 150, the Tribunal allowed weighted deduction on the said expenditure on the ground that it would fall under sub -cls. (ii) and (iv) of S. 35B. It is this order of the Tribunal which has given rise to the questions set out hereinabove.