Income Tax Appellate Tribunal - Kolkata
Deputy Commissioner Of Income-Tax vs Jokai India Ltd. on 29 April, 1993
Equivalent citations: [1994]48ITD184(KOL)
ORDER
Abdul Razack, Judicial Member
1. The appeal in ITA No. 3186/Cal/ 1989 has been filed by the Revenue and the cross objection has been filed by the assessee. As the controversies involved in the appeal and the cross objection relate to the same assessee and more or less are common, the same are being disposed through this common order for the sake of convenience.
2. ITA No. 3186/Cal/1989 - The Revenue in this appeal has two-fold grievances -- (1) that the Appellate Commissioner erred in deleting the disallowance of Rs. 78,435 made by the Assessing Officer on account of payment of club bills by the assessee-company for its executives and (2) that the Appellate Commissioner erred in directing the Assessing Officer to allow development allowance of Rs. 2,40,271 on furnishing of certificates from the Tea Board.
3. The Departmental Representative submitted that the Appellate Commissioner was not justified in directing the deletion of a sum of Rs. 78,435 from out of the total sum of Rs. 97,790 representing the disallowance made by the Assessing Officer in respect of the club bills of its executives. According to the Departmental Representative, the club bills cannot be considered as an expenditure laid out wholly and exclusively for the purpose of business as the assessee-company could not achieve any benefit by making such an expenditure. The club bills expenditure was not, therefore, to be allowed in computing the taxable profits of the assessee-company. The assessee-company has not established that there was a contract with the executives to pay their club bills in addition to the remuneration.
4. The assessee's counsel, on the other hand, relied upon the order of the Appellate Commissioner and submitted that the tea estates are situated in remote areas of Assam and it is essential for the executives posted in these tea estates to have social interaction for which the clubs provided an excellant common meeting place where executives could also have exchange of technical information relating to their works with the executives of other companies. Elaborating further Shri Ballav, assessee's counsel, submitted that had the company not paid the club bills, it would have been difficult to retain the services of the executives as there was no outlet for social interaction in the remote areas in which the company's tea gardens are situated. The Appellate Commissioner, according to the assessee's counsel, very correctly appreciated the facts of the case and gave relief to the assessee-company to the extent of Rs. 78,435. To support his case the assessee's counsel relied on the two Judgments of the Hon'ble Calcutta High Court in the case of CIT v. Johnston Pumps (India) Ltd. [1988] 172 ITR 333 and in the case of CIT v.Ashoka Marketing Ltd. [1990] 181 ITR 493. Reliance was also placed on the decision of the Supreme Court in the case of Shahzada Nand & Sons v. CIT [1977] 108 ITR 358.
5. We have heard the arguments advanced by representatives of both the parties and perused the material available in the appeal record including the paper book filed by the assessee's counsel. It is common knowledge that the membership of a club is a personal privilege entitling the member to use and enjoy the property of the club and all other amenities, benefits and facilities provided therein, namely, food, drinks (hard and soft), library, card games, swimming, sports, etc. A club is thus a meeting place for relaxation, recreation, entertainment, amusement and, of course, social interaction, as the assessee's counsel submitted. But can it be said that membership of a club either by director or any executive of a company results in promotion of business or is beneficial to its business activities? We do not rule out the possibility in some stray cases that the membership of a club may enhance the business prospects of an individual or a company but the onus in law in such cases and circumstances is very heavy and the assessee has to lead cogent evidence to establish that the club membership has promoted its business or has resulted in any extra taxable income, ranking for eligibility to claim payment of club bills of any director or executive under Section 37 as an expenditure being laid out wholly and exclusively for the purpose of business. The assessee-company in the instant case failed to establish by leading shred of evidence to enable us to agree with the Appellate Commissioner in deleting the sum of Rs. 78,435. The submission of the assessee's counsel that the executives of the assessee-company were members of various clubs for having exchange of technical information relating to their work with the executives of other companies is too vague and general to be accepted for directing allowance of club bills of those executives. There might have been social interaction between the executives of the assessee-company with the executives of other companies but to say or hold that such social interaction has resulted in growth of assessee's business is too farfetched. The argument advanced on behalf of the assessee that the tea gardens being in very remote areas, it was very essential for the executives of the assessee-company to have social interaction and the club is one such place clearly goes to support the case of the Revenue rather than of the assessee that the club membership is not for business purposes but for social interaction and for other allied purposes and for availing facilities and amenities which are available in any club.
6. With utmost respect to our learned brothers, we cannot apply the findings given in order dated 13-2-1992 by 'E' Bench of this Tribunal in the case of A.P.E. Bellis India Ltd. [IT Appeal Nos. 527 to 531 (Cal.) of 1989] on which strong reliance is placed by the assessee's counsel because full facts are not narrated in that order nor any reasons given holding that club bills are allowable as business expenditure. Identical controversy arose for adj adication before Bombay 'B' Bench of the Tribunal in the case of Knik Chemical Engineers (P.) Ltd. v. ITO [1987] 20 ITD 302 and it has been held therein after elaborately discussing the facts of the case and giving reasons that club bills in the absence of evidence cannot be considered as an expenditure laid out wholly and exclusively for the purpose of business.
7. The two judgments of the jurisdictional High Court in the cases of Johnston Pumps (India) Ltd. (supra) and Ashoka Marketing Ltd. (supra) cannot be applied as the decisions in those cases centred around the controversy whether club bills reimbursed by employers was perquisite for the purpose of Section 40(c), Section 40(a)(v) and Section 40A(5) of the Income-tax Act, 1961. In the instant case, we are not confronted with such a controversy and, therefore, the abovementioned two judgments of the Hon'ble Calcutta High Court are distinguishable. We have also examined the decision of the Supreme Court in the case of Shahzada Nand and Sons (supra) and find that the controversy before the Supreme Court was regarding the allowability of commission under Section 36(1)(ii) of the Act. We are confronted with totally different controversy and, therefore, the ratio of the Supreme Court decision in the said case cannot come to the rescue of the assessee. In view of the foregoing discussions, we are clearly of the opinion that the Appellate Commissioner committed an error in directing deletion of the sum of Rs. 78,435. We, therefore, reverse the order of the Appellate Commissioner in this regard and uphold that of the Assessing Officer.
8. The next dispute is regarding the direction given to the Assessing Officer to receive certificates obtained by the assessee from the Tea Board and process the claim of the assessee under Section 33A of the Act.
9. The Departmental Representative submitted that the Appellate Commissioner went wrong in directing the Assessing Officer to receive the certificates from the Tea Board in respect of the claim made by the assessee under Section 33A of the Act because, according to Rule 8A(d), the certificates from the Tea Board should have been furnished to the Assessing Officer along with the return of income. When this is the requirement the Appellate Commissioner cannot extend the period by directing the Assessing Officer to receive the certificates from the Tea Board belatedly.
10. The assessee's counsel, on the other hand, submitted that the Appellate Commissioner did not go wrong in giving such a direction because the provisions of Rule 8A(d) are directory in nature and not mandatory. The purpose of furnishing certificates from the Tea Board was to assist and enable the Assessing Officer to completethe assessment in accordance with law. Moreover, the certificates from the Tea Board were received by the assessee-company after the filing of the return and, therefore, it was highly impossible for the assessee to comply with the provisions of Rule 8A(d). To support the submissions reliance is placed by the assessee's counsel on the decision of the Kerala High Court in the case of CIT v. Malayalam Plantations Ltd. [1976] 103 ITR 835 and order dated 8-6-1992 of 'D' Bench of this Tribunal in the case of Berger Paints India Ltd. [IT Appeal No. 430 (Cal.) of 1992] and drew our attention to paragraph 22 of the said order.
11. We have given anxious consideration to the submissions made before us by representatives of both the parties and also perused the impugned order of the Appellate Commissioner. The decision of the Kerala High Court relied upon by the assessee's counsel has also been examined. The order of 'D' Bench of this Tribunal in the case of Berger Paints India Ltd. (supra) has also been perused. The Kerala High Court had an occasion to consider a similar controversy about the non-filing of the certificate from the Tea Board as per Rule 8A(d) and their Lordships of the Kerala High Court have held as under: --
that the term "shall" need not in all contexts, circumstances and situations be treated as indicating a mandatory rule is a proposition by now well settled. That, in every case, where the question is one of consequence of non-observance of a provision, the court has to decide the legislative intent, and to decide this, the court has to consider not only the actual words what is enjoined by the provisions and the material danger to the public by the contravention of the scheme, was observed by the Supreme Court in Banwarilal Agar walla v. State of Bihar MR 1961 SC 849. The examination of the provision, therefore, must be with a view to ascertain the intent of the Legislature where it is the provision of a statute that arises for consideration and that of the rule making authority when it is a rule that calls for consideration. The grant of development allowance is provided by Section 33A of the Act. Such allowance is to be granted to persons who had developed tea estates in the manner provided in the section. That is subject to certain conditions prescribed. The conditions mentioned in Rule 8A indicate that the object of the provision is to ensure that the assessee has really developed the tea estate by planting tea bushes as contemplated in Section 33A. Evidently, the provision for certificate from the Tea Board is envisaged as evidence of the petitioner's entitlement to the development allowance. If the object of the provision is to secure the benefit of the development allowance provided under Section 33A as proof of the circumstances justifying such allowance and the certificate is a material to prove such a case, it goes without saying that it appears to be unreasonable to think that this claim for allowance should be forfeited by the production of the certificate otherwise than along with the return. It is particularly so when the production of the certificate along with the return of the income is not a matter entirely within the volition of the assessee. Even when he applies for the certificate in time, so long as there is no statutory duty cast upon the Tea Board to furnish it within any particular period of time, it may be that the certificate is not issued in time for production along with the return, which has to be filed within the given time. When the certificate, though filed later, is available to the Income-tax Officer for the purpose of determining the development allowance, the object of Section 33A of the Act would be defeated by the construction that the provision in Rule 8A requiring the certificate to be filed along with the return is a mandatory provision, non-compliance of which will disentitle the assessee to claim development allowance under Section 33A of the Act. Therefore, though filing of the certificate is mandatory, the failure to file it along with the return will not result in forfeiture of the claim to development allowance.
The 'D' Bench of this Tribunal also had an occasion to consider the effect of non-filing of audit report along with the return of income for the claim under Section 32AB and Section 80HHC and our learned Brothers have concluded following the ratio laid down by the Kerala High Court in the abovementioned case that non-filing of audit report along with the return of income does not disentitle an assessee to lay its claim for deduction under Section 32AB and Section 80HHC. We are in respectful agreement with the view taken, by our learned Brothers. We have, therefore, no hesitation to hold that non-filing of certificates from the Tea Board along with the return of income is not fatal to the claim under Section 33A which has been preferred by the assessee-company. The rules serve the purpose of rendering justice and achieve the main object and intent of the principal enactment. The provisions of 8A(d) cannot be interpreted in such a manner so as to scuttle down the benefit available to the assessee under exemption/deduction provisions. After all, the reason for non-filing of the certificates from the Tea Board along with the return of income has not been deliberate but has occasioned due to circumstances beyond the control of the assessee-company, namely, the certificates were delivered to the assessee-company much later to the date of filing of the return of income. The assessee in this case has been prevented due to supervening impossibility which, in our opinion, should not come in the way, particularly when a benefit accrues to an assessee under law. We, therefore, find no infirmity in the direction of the Appellate Commissioner to process the claim of the assessee under Section 33A upon receiving the certificates obtained by the assessee from the Tea Board. The direction in the impugned order in this regard is affirmed.
12. C.O.No. 171/Cal/1989 -For the reasons given by us in ITANo. 3186/ Cal/1989 while dealing with the first ground relating to payment of club bills of the executives of the assessee-company, we dismiss the objection raised by the assessee that the Appellate Commissioner ought to have directed the deletion of sum of Rs. 19,355 representing payment of club bills of Tollygunge Club of 5 executives of the assessee-company.
13. In the result, the appeal filed by the department is partly allowed while the cross objection filed by the is dismissed.