Tea Estates India Ltd. vs Commissioner of Income Tax Commissioner of Income Tax Vs Tea Estates India Ltd.

N.V. Balasubramanian, J.—This is a combined reference at the instance of the assessee as well as at the instance of the Department. The

following questions of law have been referred for our consideration :

Whether, on the facts and circumstances of the case, the surtax paid by the assessee under the Companies (Profits) Surtax Act is an admissible

deduction in computing the total income under the Income Tax Act, 1961 ?

Whether, on the facts and in the circumstances of the case and having regard to the provisions of Sub-section (2B) of Section 37 of the Income

Tax Act, 1961, inserted by the Taxation Laws (Amendment) Act, 1978, with effect from April 1, 1979, the Appellate Tribunal was justified in

holding that the said provisions are applicable only to the expenditure incurred during the accounting year 1979-80 relevant to the assessment year

1980-81 and not to the assessment year 1979-80 itself ?

Whether, on the facts and in the circumstances of the case and having regard to the provisions of Section 37(2B) of the Income Tax Act, 1961,

the Appellate Tribunal was right in law in holding that the expenditure incurred by the assessee by way of advertisement in the souvenir published

by the Indian National Congress should be allowed as a deduction in computing the income for the assessment year 1979-80 ?

The year of assessment is common for both the references, viz., 1979-80. In so far as the question of law referred to us at the instance of the

assessee is concerned, it is fairly stated that the question is covered against the assessee by a recent decision of the Supreme Court in the case of

Smith Kline and French (India) Ltd. and Others Vs. Commissioner of Income Tax, , wherein the Supreme Court held that the surtax levied under

the Companies (Profits) Surtax Act, 1964 falls within the mischief of Sub-clause (ii) of Clause (a) of Section 40 of the Income Tax Act, 1961, and

cannot be allowed as a deduction while computing the business income of the assessee under the provisions of the Income Tax Act. Following the

said decision of the Supreme Court, we answer the question of law referred at the instance of the assessee in the affirmative, against the assessee

and in favour of the Department,

In so far as the questions of law referred at the instance of the Department are concerned, the Tribunal held that the provisions of Section

37(2B) of the Income Tax Act, 1961, which was introduced by the Taxation Laws (Amendment) Act, 1978, with effect from April 1, 1979, did

not apply to the expenditure though incurred in the previous year relevant for the assessment year 1979-80 and subject to any disallowance since

the expenditure was incurred prior to April 1, 1979. The reasoning of the Appellate Tribunal is that the law was introduced only with effect from

April 1, 1979, and hence the provision would apply only to the expenditure, incurred after April 1, 1979, and not for prior expenditure.

Challenging that order of the Appellate Tribunal, the Revenue has sought for a reference and two questions of law have been referred to us at the

instance of the Revenue.

We are of the view that the view of the Appellate Tribunal is plainly erroneous as it is well settled by the several decisions of the apex court as

well as by decisions of this court that the law in force on the first day of April of the assessment year would be the law applicable for the allow-

ability of the expenditure incurred in the previous year relevant for the assessment year. If any authority is needed in support of the proposition, it is

found in the judgment of the apex court in Reliance Jute and Industries Ltd. Vs. Commissioner of Income Tax, West Bengal, . There is no doubt

that the expenditure was incurred during the previous year relevant for the assessment year 1979-80 and though it was incurred prior to April 1,

1979, the law to be applied is the law in force on the first day of April of the assessment year and since Section 37(2B) of the Act came into full

force on April 1, 1979, Section 37(2B) of the Act would apply and the expenditure incurred by the assessee by way of advertisement in the

souvenir published by the Indian National Congress is not allowable expenditure for the year 1979-80. The amendment of law has not indicated

anywhere any contrary intention making it inapplicable to the expenditure in question. Therefore, we are of the view that the Tribunal is not correct

in holding that the provisions of Section 37(2B) of the Act did not apply to the expenditure incurred by the assessee. As per the amendment the

expenditure is not allowable as a business expenditure.

Accordingly, we answer both the questions of law referred to us at the instance of the Revenue, in favour of the Department and against the

assessee. No costs.