Case Note & Summary
The case is an income tax reference under Section 256(1) of the Income-tax Act, 1961, arising from a dispute between the Commissioner of Income-tax, Bombay City-II (applicant/revenue) and Alfa Laval (I) Ltd. (respondent/assessee). The Income Tax Appellate Tribunal referred two questions of law to the Bombay High Court. The first question concerned the computation of disallowance under Rule 6D of the Income-tax Rules, 1962: whether it should be computed on the basis of total expenditure on each employee for the whole year or on the basis of expenditure incurred on each trip. The second question was whether an expenditure of Rs.44,966/- incurred by the assessee on foreign trips of the wife of the company president was wholly and exclusively incurred for business and allowable as a deduction. The High Court, relying on its earlier decision in CIT v. Aorow India Ltd. (1998) 229 ITR 325 (Bom), answered the first question in favor of the revenue, holding that disallowance under Rule 6D must be computed on an annual per employee basis, not per trip. Regarding the second question, the Court noted that the Tribunal had found as a fact that the wife's trip was for business purposes, and since that finding was not challenged as perverse, the expenditure was allowable under Section 37(1) of the Act. The Court answered the second question in favor of the assessee and against the revenue.
Headnote
A) Income Tax - Rule 6D Disallowance - Computation Basis - Disallowance under Rule 6D of Income-tax Rules, 1962 should be computed on the basis of total expenditure on each employee for the whole year and not on the basis of expenditure incurred on each trip - Held, following CIT v. Aorow India Ltd. (1998) 229 ITR 325 (Bom) (Para 2). B) Income Tax - Business Expenditure - Allowability of Spouse's Travel - Expenditure of Rs.44,966/- incurred by assessee on foreign trips of wife of company president was held to be wholly and exclusively incurred for business of assessee and allowable as deduction under Section 37(1) of Income-tax Act, 1961 - Held, Tribunal's finding of fact that trip was for business purposes was not perverse (Para 3).
Issue of Consideration
Whether disallowance under Rule 6D of Income-tax Rules, 1962 should be computed on total expenditure per employee for the whole year or per trip; Whether expenditure on foreign trip of wife of company president was wholly and exclusively for business
Final Decision
First question answered in favour of revenue and against assessee; second question answered in favour of assessee and against revenue.
Law Points
- Disallowance under Rule 6D of Income-tax Rules
- 1962 computed on annual per employee basis
- not per trip
- Expenditure on wife's foreign trip allowable if wholly and exclusively for business
