Delhi High Court
Commissioner Of Income-Tax vs Oriental Fire And General ... on 26 August, 1998
Equivalent citations: 1999 237 ITR 542 Delhi
Author: R Lahoti
Bench: R Lahoti, C Mahajan
JUDGMENT
R.C. Lahoti, J.
1. This is a common reference under Section 256(1) of the Income-tax Act, 1961, referable to assessment years 1976-77 and 1977-78 made at the instance of the Revenue seeking the opinion of the High Court on the following question of law :
"Whether, on the facts and in the circumstances of the case, the Tribunal was correct in law in confirming the order of the Commissioner of Income-tax (Appeals) deleting and disallowing of Rs. 1,05,604 on account of entertainment expenses incurred outside India ?"
2. After hearing learned senior standing counsel we are of the opinion that the question suffers from an inadvertent/typing error. It does not bring out the real controversy and also it does not fit in the factual matrix of the case. The question is, therefore, recast as under :
"Whether, in the facts and circumstances of the case, the Tribunal was correct in law in confirming the order of the Commissioner of Income-tax-(Appeals) reducing the deletion of entertainment expenditure under Section 37(2A) by Rs. 1,05,604 on the reasoning that the said entertainment expenditure was incurred outside India and was, therefore, entitled to deduction under Section 35B of the Income-tax Act ?"
3. The relevant facts may briefly be stated. The assessee is a subsidiary of General Insurance Corporation of India and is engaged in the business of general insurance. An amount of Rs. 8,99,429 was claimed as a deduction on account of entertainment expenses and entertainment allowances. The assessee was held entitled to a deduction of Rs. 30,000. The balance amount of Rs. 8,69,429 was disallowed.
4. The matter went up in appeal to the Commissioner of Income-tax (Appeals). Before the Commissioner of Income-tax (Appeals) it was projected that though the disallowance may be upheld by reference to Section 37(2A) but out of the said amount, an amount of Rs. 1,05,604 was incurred by way of entertainment expenditure outside India which deserves to be considered for weighted deduction under Section 35B of the Act (as it stood at the relevant time). The plea prevailed with the Commissioner of Income-tax (Appeals). He observed :
"Therefore, the disallowance is upheld subject to a deduction of Rs. 1,05,604 being entertainment expenditure incurred outside India which in my view falls for consideration under Section 35B."
5. There were also other issues involved. The assessee and the Inspecting Assistant Commissioner both went in appeal to the Income-tax Appellate Tribunal. So far as the view taken by the Commissioner of Income-tax (Appeals) by reference to Sections 37(2A) and 35B of the Act is concerned, it was upheld by the Income-tax Appellate Tribunal. Consequently, the direction of the Commissioner of Income-tax (Appeals) requiring the Inspecting Assistant Commissioner to modify the assessment in accordance with the directions given by the Commissioner of Income-tax (Appeals) was also upheld.
6. Entertainment expenditure incurred on the employees of the assessee even if it was incurred outside India, is not entitled to weighted deduction under Section 35B of the Act. Reference may be had to the law laid down by the Supreme Court in its two recent decisions, namely, CIT v. Step well Industries Ltd. [1997] 228 ITR 171 and CIT v. Hero Cycles Pvt. Ltd, [1997] 228 ITR 463.
7. In the case of CIT v. Hero Cycles Pvt. Ltd. [1997] 228 ITR 463 (SC), at pages 471-472, their Lordships have clearly laid down that the benefit of Section 35B shall not be available while computing the profits and gains of insurance business.
8. For the foregoing reasons, the question is answered in the negative, i.e., in favour of the Revenue and against the assessee.
9. Before parting, we may place on record that though the reference is for two years and hence registered at two numbers the subject-matter of the question is referable to the assessment year 1977-78 only. We do not find any question referred or framed for the assessment year 1976-77. We leave it at that and direct that one copy each of this order shall be placed on the records of ITR's Nos. 144 of 1985 and 145 of 1985. Both the cases be treated as disposed of.
