Karnataka High Court
Stumpp, Schuele And Somappa Ltd. vs Commissioner Of Income-Tax on 22 November, 1990
Equivalent citations: (1991)190CTR(KAR)152, [1991]190ITR152(KAR), [1991]190ITR152(KARN), [1992]61TAXMAN278(KAR)
JUDGMENT M.P. Chandrakantharaj Urs, J.
1. In this income-tax reference case, the Appellate Tribunal (Bangalore Bench) on an application made by the appellant-assessee before it, under section 256(1) of the Income-tax Act, declined to refer the first of the two questions which the assessee required the Tribunal to refer to this court for answer. However, the Tribunal, after considering the facts of the case, referred the second question which is as follows :
"Whether the Tribunal was correct in holding that the expenses incurred by an assessee on account of its employees attending to its business from outside its headquarters for the days on which the employees did not actually travel would also come under the purview of section 37(3) of the Act read with the rule 6D of the Income-tax Rules ?"
2. The facts leading to the appeal and the reference may be stated briefly and they are as follows :
The assessee is a manufacturing company carrying on its activities in Bangalore. For the assessment year 1977-78, in its return it claimed under rule 6D of the Income-tax Rules read with section 37(3) of the Income-tax Act (hereinafter referred to as "the Rules" and "the Act" respectively), allowance of Rs. 41,798 being the expenditure incurred for travelling and stay of its employees and directors when they were away from the head-quarters in connection with the work of the company. It was contended that only a sum of Rs. 20,000 should be added back which was the expense incurred for travelling and cost of stay outside the headquarters of the employees other than such expenses incurred in respect of directors' travel and stay on the ground that the directors were not covered by rule 6D. The assessing authority did not accept that contention. He came to the conclusions that, under rule 6D of the Rules, both the directors and the other employees were covered and, therefore, the whole of the sum of the Rs. 41,798 should be added back and the income computed as such. Among other things, on the concluded assessment, the aggrieved assessee filed an appeal before the Commissioner of Income-tax (Appeals), Bangalore. In the fifth ground taken, the assessee had raised the same contention which was raised by the assessee in regard to the disallowance of travelling allowance and cost of stay in hotels for its employees and directors. But the appellate authority did not give any relief. Aggrieved by the appellant authority's order, further appeals to the Income-tax Appellate Tribunal Bangalore Bench, in Income-tax Application Nos. 737 and 738/Bang of 1980 and 32/Bang of 1981 for the assessment years 1975-76, 1976-77 and 1977-78 were preferred. By a composite order, the Tribunal declined to entertain the contention of the assessee to the effect that the directors or employees who travelled outside the headquarters in connection with the work of the company were entitled to full cost of their stay in hotel or guest house notwithstanding the prescription under rule 6D on days when they did not do any work in connection with the travel undertaken such as holidays, etc., and as such they were entitled to the full cost paid in respect of their stay.
The assessee before the Tribunal relied upon a decision of the Delhi Bench of the Tribunal which had entertained a similar contention and allowed the claim having regard to a circular issued by the Company Law Board on the clarifications sought by the Chamber of Commerce, Bombay. In our opinion, the Bangalore Bench of the Tribunal rightly did not follow the decision rendered by the Delhi Bench of the Tribunal because, having regard to section 119 of the Act, only the circular issued by the Department and that too by the authorised authorities are binding on the assessing authorities and other adjudicating authorities and not circulars or instructions issued by the authorities other than those empowered to issue directions under section 119 of the Act. The Tribunal reasoned out, following the decision of the Kerala High Court in the case of V. A. Vasumathi v. CIT , that the stay of the director or the employee was in connection with the travel he had undertaken for the purpose of the work of the company outside his headquarters and, therefore, whether he actually performed the work on a given day or not, the stay which was incidental to the travel in connection with the work of the company could not be served on such days when it was claimed that the work was not performed. In the aforesaid decision of the Kerala High Court, Justice T. Kochu Thommen, as His Lordship then was, dealing with section 48 of the Act providing for computation of capital gains, considered the meaning to be given to the expression "in connection with" occurring in that section. Following an English decision, In re Nanaimo Community Hotel Ltd. (1944) 4 DLR 638, "in connection with" was held to include matters occurring prior to as well as subsequent to or consequent upon so long as they are related to the principle thing. In other words, whatever has nexus to the travel undertaken in connection with the work outside the headquarters resulting in the stay, such stay, whether actual work in connection with the company's affairs was carried out or not, would be relatable to the travel undertaken which was undisputably in connection with the work of the company and, therefore, the only logical inference to be drawn is that the stay also was in connection with the work as it is intimately connected with the travel undertaken.
3. Therefore, we must answer the question in the affirmative and in favour of the Revenue. We do so accordingly.