Commissioner of Income Tax vs City Ahmedabad Spinning and Weaving Mfg. Co.

G.T. Nanavati, J.—Though the Tribunal has made only one reference, really it ought to have made three separate references as identical but

separate questions arose in respect of the three different years, namely, 1973-74, 1974-75 and 1975-76. As the Tribunal has failed to do so, we

direct the office to treat Income Tax Reference No. 548 of 1980 as a reference arising out of the order made for the assessment year 1973-74,

and Income Tax Reference No. 548B of 1980 and Income Tax Reference No. 548B of shall be treated as reference arising out of the orders

made for the assessment to years 1974-75 and 1975-76, respectively. The question which is referred to this court by the Tribunal u/s 256(1) of

the Act is as under :

Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in law in holding that the deduction in respect of

expenditure of Rs. 18,536 Rs. 10,089 and Rs. 19,729 respectively, was allowable for the assessment years 1973-74, 1974-75 and 1975-76 ?

For the assessment years 1973-74, 1974-75 and 1975-76, the assessee claimed deduction in respect of the expenditure of Rs. 18,536, Rs.

10,089 and Rs. 19,722, respectively, on the ground that it was business expenditure and, therefore, an allowable deduction. The Income Tax

Officer rejected the claim of the assessee on the ground that the expenditure claimed was disproportionate to the income.

As the assessee was aggrieved by this disallowance, it preferred three separate appeals to the Appellate Assistant Commissioner. The Appellate

Assistant Commissioner accepted the claim of the assessee and allowed the appeals filed by the assessee to that extent.

The Department then went in appeal to the Tribunal by filing three separate appeals. The Tribunal dismissed the appeals agreeing with the view

taken by the Appellate Assistant Commissioner.

The same contention which was urged on behalf of the Revenue before the lower authorities has been urged before us. Now, in this connection,

what is required to be bone to mind is that it is found as a matter of fact that the said expenditure was incurred and it did relate to the business

activity of the assessee. Merely because the assessee''s income, after incurring such expenses, was found to be little or negligible, it cannot be said

that the said expenditure became an impermissible deduction. The Tribunal has rightly pointed out that the whole approach of the Department was

not correct. Once it is found that the expenditure was bona fide incurred and that the same related to the business activity then it would become

deductible as the same is permitted by the provisions of law. Whether business expenditure is deductible or not would depend upon the relevant

provisions of law and not how the income was earned after incurring that expenditure. We, therefore, hold that the Tribunal was right in holding

that the deduction is respect of the expenditure of Rs. 18,536, Rs. 10,089 and Rs. 19,722 was allowable for the assessment years 1973-74,

1974-75 and 1975-76.

In the result the question is answered in the affirmative, that is against the Revenue and in favour of the assessee. No order as to costs.