Punjab-Haryana High Court
Commissioner Of Income Tax vs Porritts & Spencer (Asia) Ltd. on 30 November, 1998
Equivalent citations: [2000]241ITR126(P&H)
Author: N.K. Agarwal
Bench: N.K. Agarwal
JUDGMENT G.C. Garg, J.
1. The Tribunal (Delhi Bench "E" Delhi) at the request of the Revenue, in proceedings under s. 256(1) of the IT Act, referred the following questions of law, said to be arising out of its order, relating to the asst. yr. 1973-74 to this Court for its opinion :
(i) Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the assessee was entitled to depreciation on technical know-how capitalised at Rs. 10 lacs ?"
(ii) Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that for the purposes of computing the disallowance under s. 40A(5) of the IT Act, the provisions of r. 3(c)(ii) of the IT Rules should be invoked ?
(iii) Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the excess of expenditure incurred by an assessee in connection with travelling of an employee should be worked out under r. 6D(2), for the whole of period spent outside the headquarter during the year and not by reference to each trip made by the employee ?
2. After hearing learned counsel for the parties, we find that questions (i) and (ii) are covered by a decision of this Court in the case of assessee itself, reported as Porrits & Spencer (Asia) Ltd. vs. CIT (1989) 180 ITR 211 (P&H) : TC 18R.634; 28R.329. In that view of the matter, we answer these two questions in the affirmative i.e., in favour of the assessee and against the Revenue.
3. Some facts relating to question (iii) deserve to be noted at this stage.
The assessee is a company engaged in the manufacture and sale of felts for the paper manufacturing industry. Case of the assessee is that it is entitled to deduction of expenditure incurred on travelling under r. 6D(2) of the IT Rules, 1962 (for short "the Rules") in respect of each employee by clubbing the days of his travel outside the headquarters of the company during the entire relevant accounting year. The AO, however, disallowed a part of travelling expense in excess of the limits prescribed under r. 6D(2) of the Rules by working out the travelling expenses on a single trip basis. In appeal, the contention of the assessee was that there is nothing in r. 6D which would require that disallowance has to be made by considering a single trip by a particular employee. According to the assessee, all trips of the employees during the relevant accounting year put together are to be considered for the purposes of r. 6D(2) of the Rules. The CIT(A) concurred with the AO and rejected the contention of the assessee.
4. Case of the assessee before the Tribunal was that under r. 6D(2) of the Rules, the total number of days travelled by each employee during the year should be taken together and considered and not with reference to each trip made by an employee. The Tribunal relying on a decision of the Tribunal, Bombay in the case of Blakie & Sons (India) Ltd. vs. ITO came to the conclusion that the plea of the Revenue is not correct. It accordingly, following that decision, allowed consequential relief due to the assessee under this head.
Learned counsel appearing for the assessee submitted that the Tribunal was right in law in clubbing all the trips of an employee during the relevant accounting year for the purpose of allowing deductions under r. 6D(2) of the Rules. Mr. Sawhney, learned counsel appearing for the Revenue, however, submitted that the language of r. 6D(2) of the Rules is absolutely clear and there is no scope for coming to the conclusion that all the trips of an employee during the relevant accounting year are required to be clubbed together for the purpose of allowance of expenditure incurred by the assessee in connection with travelling outside the headquarters of such employee for business or profession of the assessee.
5. In order to consider the rival contentions of learned counsel for the parties, it is considered necessary to notice the provisions of r. 6D(2) of the IT Rules, 1962, which read thus :
"6D. Expenditure in connection with travelling etc. "6D. Expenditure in connection with travelling etc. (1) xxx xxx xxx (2) The allowance in respect of expenditure incurred by an assessee in connection with travelling 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 assessee 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 spent outside such headquarters :
(i) in respect of an employee whose Rs. 80 per day or
salary is Rs. 1,000 per month part thereof;
or more
(ii) in respect of any other employee Rs. 40 per day or
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
assessee :
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 assessee, 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."
6. The assessee took a stand before the AO that the expenditure incurred by it in connection with travelling of its employees outside the headquarters deserves to be considered in a group and not by reference to trips by an employee. However, before the Tribunal the stand of the assessee was that all trips by an employee during the relevant accounting year are required to be clubbed together and allowance in respect of expenditure granted and the allowance of expenditure is not to be calculated on the basis of each single trip of an employee as was sought to be contended by the Revenue. The stand of the assessee found favour with the Tribunal. Rule 6D(2) provides for allowance in respect of the expenditure incurred by the assessee in connection with travelling by an employee outside the headquarters for the purposes of business or profession of the assessee. Clause (b) of sub-r. (2) of r. 6D further provides that in respect of any other expenditure in connection with such travel, an amount calculated at the rates indicated against each item shall be payable. Proviso appearing after sub-cl. (b) ibid provides that if the stay of such employee or other person is at Bombay, Calcutta or Delhi, the amount computed at the prescribed rates shall be increased by a sum equal to fifty percent of such amount.
Further proviso below the proviso to cl. (b), provides that in a case where such employee stays outside his head quarters in a rent-free accommodation or in a guest house maintained by the assessee, the amount payable to him shall be calculated at one-third of the prescribed rates.
7. A combined reading of the aforesaid rule and the provisos appearing thereunder clearly goes to show that this rule refers to an employee, and such employee at more than one place. Thus, it cannot be said that the assessee is entitled to allowance of an expenditure incurred under this head by clubbing the expenses of all the employees relating to a particular accounting year. The benefit also cannot be given to an employee by clubbing the trips undertaken by him during the entire accounting year for the purposes of granting the relief under this rule to the assessee. Clause (b) and the proviso appearing thereunder clearly lead to the conclusion that an employee outside the headquarters is entitled to different rates, depending upon the situation i.e., stay in a hotel, stay at Bombay, Calcutta or Delhi or stay in a rent-free accommodation, or in a guest house maintained by the assessee. Once that is so, an employee is required to be paid that amount on account of his travelling outside the headquarters of the company keeping in view his each trip, the place and the nature of his stay. Contention of learned counsel for the assessee before the Tribunal was right to the extent that the expenditure of each individual employee is required to be considered under the sub-rule. However, the claim of the assessee that all the trips undertaken by an employee can be clubbed together, cannot be accepted in view of specific provisions contained in cl. (b) of sub-r. (2) of r. 6D and the proviso appearing thereunder.
8. We are, therefore, of the opinion that there is nothing in sub-r. (2) of r. 6D of the Rules which may give even the slightest indication to support the contention of the assessee. Rather the use of the words "an employee" and "such employee" clearly leads to the conclusion that the expenditure for the purpose of r. 6D(2) of the Rules is to be considered on the basis of each trip of an individual employee outside the headquarters.
9. For the conclusion arrived at by above, question 3 is answered in the negative i.e. in favour of the Revenue and against the assessee.
Reference stands answered accordingly. No costs.