Commissioner of Income Tax vs Acme Manufacturing Company Ltd.

The short point which arises for consideration in this appeal is : whether the Commissioner of Income Tax (Appeals) was right in directing the Income Tax Officer to exclude the conveyance expenses and telephone expenses from computation of disallowance under Rule 6D of the Income Tax Rules, 1962.

The facts relevant for the purpose of deciding the above question are as follows :

The controversy in this case pertains to the assessment year 1989-90. The assessee-company is engaged in the business of manufacturing and sale of cranes, gas generators, etc. As per the tax audit report, disallowance was worked out at Rs. 1,52,372. The Assessing Officer in the course of verification of the details, found that the expenses incurred by the assessee in the course of traveling had not been considered for the purposes of disallowance. As per the details available on the record, the total of other expenses of Rs. 1,56,374 was disallowed in addition to the disallowances made by the assessee of Rs. 1,52,372. The matter was carried in appeal. The appellate authority came to the conclusion that Rule 6D had no application to the expenses incurred by the assessee on account of conveyance and the calls made. The appellate authority found merit in the contention of the assessee that the above expenses were incurred purely for the purposes of the business. Accordingly, the appellate authority directed the Assessing Officer to exclude the above expenses from the computation of the disallowance made by the Assessing Officer under Rule 6D of the Income Tax Rules. Being aggrieved, the Department preferred an appeal to the Tribunal. The said appeal has been dismissed. Hence, the Department has filed the present appeal u/s 260A of the Income Tax Act.

Learned counsel appearing on behalf of the Department contended that the point involved in this appeal needs to be considered. It was urged that the Tribunal has relied upon the judgment of this court in the case of CIT v. Gannon Dunkerly and Co. in which it has been held that the local conveyance expenses and other actual expenses incurred by an employee while on tour and for the business of the employer, shall stand excluded from traveling expenses for the purposes of Rule 6D. It was contended on behalf of the Department that the judgment of this court in the case of Gannon Dunkerly and Co., was based on the findings recorded by the Assessing Officer in that case and that it has not laid down any principle of law. Hence, the Tribunal erred in relying upon the said judgment. It was also contended on behalf of the Department that in the case of Inaroo Limited Vs. Commissioner of Income Tax, , it has been laid down that the expression "hotel expenses" is specifically mentioned within parenthesis both in Section 37(3) and Rule 6D(2) and, therefore, the word "etc." mentioned in the marginal note along with the words "expenditure in connection with traveling" does not mean that the rule provides for expenditure on travel only. In other words, it was urged on behalf of the Department that the word "etc." in Section 37(3) read with Rule 6D clearly refers to conveyance and other expenses which are required to be disallowed subject to the ceiling prescribed in the said rule.

We do not find any merit in the said contentions advanced on behalf of the Department. In the case of Inaroo Limited Vs. Commissioner of Income Tax, , the facts were as follows. For the assessment year 1972-73, the assessee claimed deduction in respect of expenses incurred by the company when some foreigners came to India in connection with the business of the assessee. The assessee had incurred expenditure on five foreigners who visited India and stayed in hotels. The expenditure incurred by the assessee which came to be disallowed by the Assessing Officer was in view of Rule 6D of the Income Tax Rules. The Tribunal held that the Assessing Officer was entitled to make disallowance under Rule 6D. The Tribunal upheld the disallowance made by the Assessing Officer under Rule 6D. It was on the facts of that matter that this court observed that in order to invoke Rule 6D, expenditure mentioned in Clauses (a) and (b) of Rule 6D(2) should have been incurred. However, on the facts of that case, the High Court found that no expenditure in respect of travel by rail, road, waterway or air had been incurred within India. Under the above circumstances, this court laid down that in order to attract Rule 6D(2), the Assessing Officer has to ascertain whether the expenditure incurred was in regard to stay in the hotels in Bombay and, accordingly, Rule 6D(2) read with Section 37(3) needs to be applied. The point to be noted is that the entire judgment of this court purely proceeds on the basis of hotel expenditure incurred by the assessee. In the circumstances, the judgment of this court in Inaroo Limited Vs. Commissioner of Income Tax, , has no application to the facts of this case.

In the case of Commissioner of Income Tax Vs. Chemet, , the facts were as follows. The assessee was engaged in the business as commission agents and brokers for chemicals and dyes. The assessee claimed deduction on account of miscellaneous expenses, local and other conveyance expenses. The Assessing Officer disallowed the same. The Assessing Officer included the said expenses incurred by the assessee in the computation under Rule 6D of the Rules. The matter was carried in appeal. The appellate authority accepted the contention of the assessee and directed the Assessing Officer to take into account only the total expenses for the purposes of applying Rule 6D(2) excluding expenses of conveyance and miscellaneous expenses. The appeal of the Revenue before the Tribunal came to be rejected. This court followed the judgment in the case of CIT v. Cannon Dunkerly and Co. and came to the conclusion that local conveyance expenses and other actual expenses incurred by the employee on tour for conducting the assessee''s business cannot be considered as traveling expenses under Rule 6D of the Rules and, accordingly, this court directed the Assessing Officer to exclude the expenses from the computation of disallowance under Rule 6D of the rules. The said judgment applies to the facts of this case.

In the circumstances, the appeal is dismissed. No order as to costs.

C. C. expedited.