Delhi High Court
Commissioner Of Income-Tax vs Nath Brothers Exim International Ltd. on 24 December, 1999
Equivalent citations: [2000]244ITR538(DELHI)
Author: D.K. Jain
Bench: Arun Kumar, D.K. Jain
JUDGMENT D.K. Jain, J.
1. At the instance of the Revenue, in respect of the assessment year 1981-82, the following questions have been referred by the Income-tax Appellate Tribunal (for short the "Tribunal") under Section 256(1) of the Income-tax Act, 1961 (for short "the Act"), for the opinion of this court :
"1. Whether, on the facts and circumstances of the case, the Tribunal was correct in law in holding that expenditure of Rs. 58,000 (Rs. 10,000 as security and Rs. 48,000 on construction of the partition wall, wooden cabins, rooms, etc.) was a revenue expenditure ?
2. Whether, on the facts and circumstances of the case, the Income-tax Appellate Tribunal was correct in law in holding that expenditure of Rs. 28,928 incurred in India on hospitality to foreign buyers was eligible for weighted deduction under Clause (i) of Section 35B(1)(b) of the Income-tax Act ?"
2. The assessee is a limited company, engaged in the business of export of garments and handicrafts. The relevant accounting year ended on March 31, 1981. The assessee applied for an industrial shed in the industrial complex developed by the Delhi State Industrial Development Corporation Limited (for short "the DSIDC") and deposited a sum of Rs. 10,000 as security deposit, earnest money and advance for power connection charges, etc. As the DSIDC was to provide only the boundary wall, the assessee constructed wooden cabins, etc., and spent Rs. 48,000 on this account. Ultimately, the DSIDC did not allot the shed to the assessee, which action of the DSIDC was unsuccessfully challenged by the assessee. According to the statement of the case, in the final accounts for the relevant assessment year, the assessee claimed the said amount of Rs. 58,000 as business loss. While framing the assessment for the relevant assessment year, the Assessing Officer disallowed the same on the ground that it was a capital loss. Aggrieved, the assessee preferred an appeal to the Commissioner of Income-tax (Appeals), but the same was unsuccessful. While deciding the issue against the assessee, the Commissioner of Income-tax (Appeals) observed that both the deposit as well as the expenditure incurred on the construction of cabins/shed had been laid out in the financial year ending March 31, 1976, and had not been treated as revenue expenditure ; both the items appeared in the balance-sheets of the assessee as on March 31, 1977, March 31, 1978, March 31, 1979, and March 31, 1980, and were transferred to the profit and loss account only during the relevant previous year ; and the expenditure having been incurred well before the beginning of the period relevant to the assessment year in question, under no principle of accountancy could it be taken into consideration for computing total income for the relevant accounting period, namely, the year ended March 31, 1981. Having held so, the Commissioner of Income-tax (Appeals) did not go into the question whether the expenditure was of revenue or capital in nature. The assessee carried the matter in further appeal to the Tribunal.
3. The Tribunal, without going into the afore noted issue decided by the Commissioner of Income-tax (Appeals) and placing reliance on the decision of the Supreme Court in Empire Jute Co. Ltd v. CIT [1980] 124 ITR 1, held that since the assessee had not received any benefit in the capital field, it was entitled to the deduction of the said amount.
4. The second question relates to the claim made by the assessee for weighted deduction under Section 35B of the Act in respect of the hospitality expenses incurred by the assessee in entertaining its foreign buyers. Weighted deduction on the said amount was declined by the Assessing Officer. The Commissioner of Income-tax (Appeals) affirmed the view taken by tbe Assessing Officer. In further appeal to the Tribunal, relying on the Special Bench decision of the Tribunal in J. Hem Chand and Co. 1 SOT 150, the Tribunal allowed weighted deduction on the said expenditure on the ground that it would fall under Sub-clauses (ii) and (iv) of Section 35B. It is this order of the Tribunal which has given rise to the questions set out hereinabove.
5. We have heard Mrs. Prem Lata Bansal, learned counsel for the Revenue, and Mr. S. K. Aggarwal, learned counsel for the assessee.
6. Mrs. Bansal has submitted that by incurring the said expenditure on the shed, the assessee had acquired a capital asset within the meaning of Section 2(14) of the Act and, therefore, the expenses incurred were in the nature of capital expenditure and that being so, it could not be written off as revenue loss. Having perused the orders passed by the Assessing Officer and the Commissioner of Income-tax (Appeals), at the outset we are constrained to observe that not only the statement of the case hardly contains any facts with regard to the nature of arrangement and the terms and conditions for allotment of the industrial shed by the DSIDC to the assessee and the reason for its cancellation/non-allotment, even the Tribunal has not addressed itself to the real issue arising in the case. The main question before the Tribunal was whether the assessee could write off in its accounts for the period ended March 31, 1981, as revenue loss, the expenditure incurred by it in the earlier years and treated as capital expenditure in the four immediately preceding years. We do not find any discussion in the Tribunal's order on this aspect of the matter. Irrespective of the fact when the expenditure was incurred, the Tribunal proceeded to decide the question in a general form, namely, whether the expenditure in question was revenue or capital, the issue, which, as noted above, was not dealt with by the Commissioner of Income-tax (Appeals). In this view of the matter, on the facts Of the case, the first question referred for our opinion is misconceived and, therefore, we deem it unnecessary to answer the same. Accordingly, the first question is returned unanswered. The Tribunal may decide the issue afresh in accordance with law.
7. So far as the second question is concerned, learned counsel for the parties are agreed that in so far as this court is concerned, the issue stands concluded in favour of the Revenue by a decision of this court in CIT v. International Exporters [1998] 233 ITR 23, wherein it has been held that the expenses incurred on entertaining the foreign buyers were not expenditure incurred wholly and exclusively on any of the purposes set out in Clause (b) of Section 35B(1) and, therefore, not entitled to weighted deduction under the said section. Following the said decision, with which we are in respectful agreement, we are of the opinion that the Tribunal was not correct in law in holding that the expenditure incurred in India on hospitality to foreign buyers was eligible for weighted deduction under Section 35B of the Act.
8. For the foregoing reasons, question No. 1 is returned unanswered and question No. 2 is answered in the negative, i.e., in favour of the Revenue and against the assessee. There will, however, be no order as to costs.