COMMISSIONER OF INCOME TAX vs ACME MFG. CO . LTD.

BY THE COURT:

The short point which arises for consideration in this appeal is whether the Commissioner (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 IT Rules.

The facts relevant for the purpose of deciding the above question are as follows : The assessee was engaged in manufacture and sale of cranes. gas generators, etc. The assessee was required to furnish tax audit report. That was done, As per the report, the assessee computed the disallowance under rule 6D at Rs. 1, 52,372. However, in the course of verification of the details, the assessing officer found that the assessee has not included conveyance and telephone expenses within the computation of disallowance under rule 6D. Hence, the assessing officer computed the total disallowance at Rs. 3,08,746 instead of Rs. 1,52,372. Being aggrieved, the assessee preferred an appeal before the Commissioner (Appeals) who directed the assessing officer to exclude conveyance and telephone expenses from computation of disallowance under rule 6D. This order of Commissioner (Appeals) was confirmed by the Tribunal against which the department has filed this appeal u/s 260A of the Income Tax Act. The Tribunal relied upon the judgment of this court in the case of CIT v. Gannon Dunkerly & Co. (1993) 114 CTR (BoM) 56.

Mr. Desai, learned senior counsel appearing for the department. contended that the judgment of this court in Gannon Dunkerly''s case (supra) was confined to the facts of that case. He contended that the said judgment does not lay down any proposition of law regarding the scope of rule 6D. He, therefore, contended that the said judgment has no application to the facts of this case. He has relied upon the judgment of this court in Inaroo Limited Vs. Commissioner of Income Tax, . He contended that the expenditure incurred by the assessee on travel and hotels would have been allowable u/s 37(1) of the Act. However, since section 37(3) of the Act has carved out certain expenditure which can be disallowed in excess of certain limits prescribed under rule 6D(2), the provisions of section 37(3) read with rule 6D(2) have to be construed strictly. He contended that in order to read rule 613(2) harmoniously with section 37(3), the marginal note of rule 6D which uses the word "etc." along with the expression "expenditure in connection with travelling" will not mean that the said rule provides for expenditure on travel only. He, therefore, contended that the word "etc." includes all other expenses, He relied upon the judgment of this court in Inaroo Ltd. (supra).

We do not find any merit in the above contentions of the department. In Inaroo Ltd. (supra), the question which arose for determination was whether rule 6D(2) was applicable to travels in India by foreign technicians whose headquarters were not in India. It was contended on behalf of the assessee ill that matter that the said foreign technicians came to India and stayed only in Bombay and they did not travel within India and, therefore, the provisions of rule 6D(2) were not applicable. It was contended that in order to attract rule 6D(2), the headquarters of employee should be within India and not outside India and since the headquarters were outside India, rule 6D did not apply. This argument was rejected by this Court. It was held that in order to attract the provisions of section 37(3), it was not necessary that headquarters of the foreigners should also be in India. It was held that rule 6D covered both the types of travelling, namely, within and outside India. It was held that in both the cases staying in hotel was necessary. Accordingly, it was held by this court that both types of expenditure were covered under rule 6D(2). In the present case, we are concerned with telephone and conveyance expenses which are incurred by the employees during travel. Hence, the judgment of this Court in the case of Inaroo Ltd. (supra) has no application. In the case of Commissioner of Income Tax Vs. Chemet, , this court has held that miscellaneous expenses, local expenses and other conveyance expenses of employees on tour for conducting the business of the assessee are required to be excluded from computation of disallowance under rule 6D. This judgment squarely applies to the facts of the present case. It has followed the judgment of this court in Gannon Dunkerly''s case (supra). We do not see any reason to take a different view.

Accordingly, the appeal is dismissed.