Delhi High Court

Bharat Commerce & Industries Ltd. vs Cit on 7 August, 2001

Equivalent citations: 2001 119 TAXMAN 560 Delhi

Author: A Pasayat

JUDGMENT

Arijit Pasayat, C.J.

Following question has been referred for opinion of this court at the instance of the assessed under section 256(1) of the Income Tax Act, 1961 (hereinafter referred to as 'the Act) by the Tribunal, Delhi Bench D :

"Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in upholding disallowance of Rs. 1,12,810 under rule 6D of the Income Tax Rules, 1962 ?"

2. Dispute relates to the assessment year 1976-77. The assessed, a public limited company, claimed that no disallowance under rule 6D of the Income Tax Rules, 1962 (hereinafter referred to as 'the Rules') was required to be made. Stand of the assessed was that boarding and lodging expenses and daily allowance paid to an employee after he reached his destination should not be taken into consideration for the purpose of applying the limits prescribed under rule 6D. The figure of such expenditure was undisputedly Rs. 1,22,677. The Income Tax Officer did not accept the assessed's submission and in the draft assessment order in terms of section 144B of the Act proposed a disallowance of Rs. 1,22,677. The assessed's objections were duly noted and the IAC held that claim was clearly disallowable. However, direction was given to restrict the figure to Rs. 1,12,810. Accordingly the Income Tax Officer forced the assessment and disallowed a sum of Rs. 1,12,810 with reference to rule 6D. The assessed carried the matter in appeal before the Commissioner (Appeals) and reiterated its stand that rule 6D applied to expenses incurred during the actual traveling and did not limit the expenses allowed to and employee for stay at a particular place of work after the traveling had ended. It was submitted that traveling undertaken by an employee ended as soon as he reached the appointed destination and the expenditure incurred during the period of stay at that place could not be categorised as traveling expenses and to such expenses provisions of rule 6D did not apply. The Commissioner (Appeals) did not accept the contention and confirmed the disallowance. Matter was carried in further appeal before the Tribunal which confirmed the addition. However, on being moved for reference, the question as set out above has been referred for opinion of this court.

3. We have heard the learned counsel for the revenue. There is no appearance on behalf of the assessed in spite of notice. Rule 6D is relatable to section 37(3) of the Act. Sections 37(1), 37(3) and rule 6D which are relevant for the purpose of dispute read as follows :

Section 37(1)

"General.(1) Any expenditure (not being expenditure of the nature described in sections 30 to 36 and section 80VV and not being in the nature of capital expenditure or personal expenses of the assessed), laid out or expended wholly and exclusively for the purposes of the business or profession shall be allowed in computing the income chargeable under the head 'Profits and gains of business or profession'.

Explanation.For the removal of doubts, it is hereby declared that any expenditure incurred by an assessed for any purpose which is an offence or which is prohibited by law shall not be deemed to have been incurred for the purpose of business or profession and no deduction or allowance shall be made in respect of such expenditure."

Section 37(3)

"(3) Notwithstanding anything contained in sub-section (1) any expenditure incurred by an assessed after the 31-3-1964, on advertisement or on maintenance of any residential accommodation including any accommodation in the nature of a guest-house or in connection with traveling by an employee or any other person (including hotel expenses or allowances paid in connection with such traveling) shall be allowed only to the extent, and subject to such conditions, if any, as may be prescribed."

Rule 6D

"Expenditure in connection with traveling, etc.,(1)(i) The allowance in respect of expenditure incurred by an assessed in connection with traveling by an employee or any other person outside India for the purposes of the business or profession of the assessed shall not exceed the amount which bears to the aggregate of the amount, if any, covered by foreign exchange granted, or permitted to be acquired, for the purpose of such travel under the law relating to foreign exchange for the time being in force and the amount expended on such travel in Indian Currency, the same proportion as is determined in the manner specified in clause (ii).

(ii) The proportion referred to in clause (i) shall be determined by dividing the number of days mainly devoted by such employee or other person for the purposes of the business or profession of the assessed outside India by the total number of days spent by such employee or other person outside India (excluding, in either case, the number of days required for such travel by a reasonably direct route in the mode of travel adopted by him).

Explanation.For the purpose of this rule, the expression days mainly devoted by such employee or other person for the purposes of the business or profession of the assessed outside India shall include any public holiday in a foreign country on which such employee or other person is required to stay outside India, provided that the working day immediately following such public holiday is mainly devoted by him for the purposes of the business or profession of the assessed.

(2) The allowance in respect of expenditure incurred by an assessed in connection with traveling by an employee or any other person within India outside the headquarters of such employee or other person for the purposes of the business or profession of the assessed shall not exceed the aggregate of the amounts, computed as hereunder :

(a) in respect of travel by rail, road, waterway or air, the expenditure actually incurred;

(b) in respect of any, other expenditure (including hotel expenses or allowances paid) in connection with such travel, an amount calculated at the following rates for the period spend outside such headquarters :

(i) in respect of an employee Rs. 1 whose salary is Rs. 1,000 per month or more

Rs. 100 per day or part thereof;

(ii) in respect of any, other employee

Rs. 50 per day or part thereof;

(iii) in respect of any other person

an amount calculated at the rates applicable in the case of the highest paid employee of the assessed :

Provided that if the stay of such employee or other person outside his headquarters is at Bombay, Calcutta or Delhi, the amount computed at the aforesaid rates shall be increased by a sum equal to fifty per cent of such amount:

Provided further that in a case where such employee or other person on any day of his stay outside his headquarters, stays free of charge in a guest house maintained by the assessed, the amount under this clause shall be calculated at one-third of the aforesaid rates and where the employee or such other person is provided lodging only free of charge, at one-half of the aforesaid rates."

In clause (a) of rule 6D(2) the actual expenditure incurred on traveling by rail, road, waterway or air, etc., is allowed. In respect of any other expenditure (including hotel expenses or allowance) paid in connection with such travel, the amount paid to the employee may be more but it is to be limited to the limits laid down in the rule. The first proviso to rule 6D(2) states that if the stay of an employee or other person outside his headquarters is at Bombay, Calcutta or Delhi, the amount computed at the said rates shall be increased by a sum equal to 50 per cent of such amount. The second proviso reduces the allowable rates of allowance where the employee during his stay outside headquarters stays free of charges in a guest house maintained by the assessed or where the employee is provided lodging only free of charge. There is no provision in rule 6D(2) to break the period of tour outside headquarters into two portions, one relating only to traveling and the second relating only to actual stay at the place of destination. In fact word 'destination' is not used in rule 6D(2). The headquarters of an employee do not change from place to place, in accordance with the places an employee may visit during the course of a tour away from headquarters. The words 'outside the headquarters of such employee' used in rule 6D(2), the words 'other, expenditure (including hotel expenses or allowances paid) in connection with such travel' used in clause (b) of the said rule, the words 'if the stay, of such employee outside his headquarter' used in the first proviso to the said rule and the words 'on any day of stay outside his headquarters' would clearly indicate that the limitation provided under rule 6D(2) covers the entire expenditure incurred by an employee both on actual traveling as well as during the period of the stay at any particular place for the purpose of business.

4. In view of the aforesaid position, the conclusions of the Tribunal on the applicability of rule 6D are in order. Therefore, we answer the question in the affirmative, in favor of the revenue and against the assessed.

The reference stands disposed of.