COMMISSIONER OF INCOME TAX Vs. DIAMOND FINANCE

JUDGEMENT

(1.) THE Income-tax Appellate Tribunal, Madras Bench "D", has referred under section 256(1) of the Income-tax Act, 1961, the following two questions :

(2.) SINCE the two questions overlap and when we see the statement of the case, we are of the opinion that the questions aforementioned should be addressed in all aspects of the scheme of the law on the subject of deduction of expenditure in computing the income chargeable under the head "Profits and gains of business or profession", we propose to first notice the facts that form the core of the statement of the case and then follow the scheme of the law for our conclusions.

(3.) BUT what we think is that when two provisions of equal force are there to disallow an expenditure, rule 6B(3) and section 40A(3), the authority should resort only to the less onerous. It has also to be noticed that section 37(3) does not lay down any guidelines to frame a rule like rule 6B(3). Further, section 37(3) under which rule 6B(3) has been framed, does not supersede section 40A(3) read with sub-section (1) but supersedes section 37(3) of the Income-tax Act, 1961. It is, therefore, section 40A(3) and the rule framed thereunder, i.e., rule 6DD only. The Commissioner of Income-tax (Appeals) was not justified in resorting to rule 6B(3), which contains no saving clauses. If the Income-tax Officer had really invoked section 40A(3), the assessee was entitled to say that his case fell under the saving clauses or that he was entitled to the benefit of the circular. That right will not be available and is taken away if the Commissioner of Income-tax (Appeals) attempts to justify the disallowance under rule 6B(3). We cannot justify or we cannot permit the authorities to sustain the disallowance under rule 6B(3), when less onerous and overriding provision in section 40A(3) is there. So that this amount can be disallowed only under section 40A(3) read with the relevant rules and circular issued by the Board. That aspect of the matter has not been gone into by any one. So we are referring the case back to the Income-tax Officer. The Income-tax Officer will apply only section 40A(3). He will give the assessee then an opportunity to establish that this expenditure is saved by the relevant rule 6DD and the circular issued by the Board to the effect that under certain circumstances where the expenditure is genuine and the recipient identifiable, section 40A(3) need not be invoked. The Income-tax Officer may also, if so advised, invoke rule 6B(1), which provides that the article intended for presentation should not cost more than Rs. 50. BUT then in that case he will also consider whether only amounts in excess of Rs. 50 per article can be disallowed or the entire amount itself as is soon suggested or indicated by the Commissioner of Income-tax (Appeals).