COMMISSIONER OF Income Tax vs MADHO LAL SUALAL.

At the instance of the Revenue, the Tribunal (Delhi Bench) referred the following questions under S. 256(2) of the IT Act, 1961 (briefly, the Act) for opinion of this Court :

"1. Whether, on the facts and in the circumstances of the case, the Tribunal was legally correct in holding that the amount of Rs. 7,103 collected as purchase tax was allowable as a deduction in computing the business income of the assessee, for the asst. yr. 1974-75 ?

Whether, on the facts and in the circumstances of the case, the Tribunal was legally correct in holding that the debit balance in the account of Sri Tara Chand should be adjusted against the credit balance in the account of the partner Dhan Kumar before calculating the interest disallowance under S. 40(b) ?

Whether, on the facts and in the circumstances of the case, the Tribunal was legally correct in holding that the sum of Rs. 5,708 cannot be added as income under S. 40(b) ?"

The Tribunal also referred the following question under S. 256(1) of the Act for opinion of this Court :

"Whether, on the facts and in the circumstances of the case, the Tribunal was legally correct in holding that the Rasoi expenses of Rs. 14,277 incurred on the assessees customers could not be disallowed as entertainment expenditure within the meaning of S. 37(2B) of the IT Act, 1961 ?

So far as question No. 1 referred under S. 256(2) is concerned, learned Standing counsel candidly states before us that the same is covered by the decision in Haji Lal Mohd. Biri Works Vs. Commissioner of Income Tax, Lucknow-II, , in which the Court ruled down that when the assessee is following mercantile system of accounting, in case of sales-tax payable by the assessee, the liability to pay sales-tax would accrue the moment the dealer made sales which are subject the sales-tax and, at that stage, the obligation to pay the sales-tax arises and the raising of the dispute in this connection before the higher authorities would be irrelevant. Following the said authority, we are of the view that the view taken by the Tribunal in the matter is correct and, therefore, the question No. 1 is answered in the affirmative, i.e. against the Revenue and in favour of the assessee.

Question No. 2 and 3 referred under S. 256(2) are interconnected and, therefore, they are taken up together.

Chief question for consideration is whether interest paid to the HUF of Dhan Kumar (partner) by the firm falls within the mischief of S. 40(b) of the Act.

The AO clearly stated while discussing about the interest paid to partner that the interest to the extent of Rs. 5,708 was due to the firm from Shri Tara Chand Jain, who is son of Shri Dhan Kumar - one of the partners of the assessee-firm. The Tribunal recorded a finding of fact that the said amount of interest was not paid to Shri Dhan Kumar (partner), but to the HUF of the said partner. It is not disputed that Shri Dhan Kumar is a partner in the assessee-firm in individual capacity and, therefore, it cannot be said that he represented his HUF in the assessee-firm. The question whether interest paid to the HUF of the partner is hit by S. 40(b) of the Act, is squarely covered by the decision of the Supreme Court in Commissioner of Income Tax, Madras Vs. R.M. Chidambaram Pillai and Others, , which was approvingly quoted by the Supreme Court in a later decision in the case of M/s. Suwalal Anadilal Jain Vs. Commissioner of Income Tax, Bihar-II, Ranchi, . The interest of Rs. 5,708 having been paid to the HUF of Shri Dhan Kumar and not to the said partner, does not fall within the mischief of S. 40(b) in view of the aforesaid authority.

We, therefore, answer question No. 3 in the affirmative, that is, against the Revenue and in favour of the assessee.

So far as question No. 2 is concerned, no such finding has been recorded by the Tribunal and, therefore, this question does not arise from the Tribunals order. The same is accordingly returned unanswered.

Coming to the last question referred under S. 256(1) by the Tribunal, we hold that the same is fully covered by the decision of Supreme Court in CIT vs. Patel Bros. Co. Ltd. 1995 UPTC 1149 (SC), in which the Court held that expenditure incurred by assessee as kitchen expenses for providing meals to its employees and its customers in the ordinary course of its business as customary trade usage prior to 1st April, 1976, was permissible deduction.

Relying on the said authority we answer the last question in the affirmative i.e. in favour of the assessee and against the Revenue.