COMMISSIONER OF INCOME TAX Vs. CARBORANDUM UNIVERSAL LIMITED

JUDGEMENT

(1.) IN view of the very extensive arguments which have been advanced before us by Mr. Jayaraman, learned counsel appearing on behalf of the Revenue, it becomes necessary to deal with these cases in a little detail. The assessee had claimed in the assessment proceedings for the assessment years 1974-75 and 1975-76, expenditure of Rs. 41,621 and Rs. 50,690, respectively, as business expenditure incurred in providing customary hospitality to the customers. The ITO declined to treat these amounts as business expenditure and added them back while computing the taxable income of the assessee. The assessee then filed appeals before the AAC who deleted the disallowance finding that the expenditure related to coffee, tea and other expenses on customers and holding that strictly speaking, such expenditure cannot be called entertainment expenditure though it was so styled by the assessee. The matter was taken up in appeal for both the years by the Department. The Tribunal set aside the order of the AAC because the assessee could not furnish the necessary particulars before the Tribunal and remanded the appeals to the AAC to enable the assessee to produce evidence in support of its claims. However, when the matter went back to the appellate authority, the appellate authority confirmed the addition on the ground that the assessee had not produced any evidence regarding the expenditure.

(2.) THE assessee took up the matter to the Tribunal. Before the Tribunal, the assessee had stated that no evidence of the actual expenditure incurred would be possible to be produced because eight years had already elapsed and the relevant papers necessary were not to be found. Relying on the decision of this court in CIT v. Karuppuswamy Nadar & Sons , deduction of the entire amount was claimed. THE Tribunal, having regard to the view which was originally taken by the appellate authority that the expenditure related to the provision of coffee and tea to the customers which was in the nature of customary hospitality, allowed only 50 per cent. of the amount claimed by the assessee in the two years in question.

(3.) THE Division Bench in Venkatesa Mills Ltd.'s case [1965] 56 ITR 384 (Mad) was dealing with a matter arising out of the provisions of the W.T. Act. THE Tribunal had declined to refer the question as to whether certain assets were exempt under s. 5(1)(xxi) of the W.T. Act. It was pointed out by the Division Bench that the Tribunal had undoubtedly decided the appeal before it in accordance with the interpretation of s. 5(1)(xxi) made by this court in Ramaraju Surgical cotton Mills Ltd. v. CWT [1962] 46 ITR 820. THE Revenue had already obtained special leave to appeal in the Supreme Court against the said judgment. THE contention of the Revenue before the High Court was that since the correctness of the decision which was followed by the Tribunal was being tested in the Supreme Court, the Tribunal should be called upon to make a reference. After referring to certain decisions and a decision of the Supreme Court in Chunilal V. Mehta v. Century spinning and manufacturing Co. Ltd., , in which the Supreme Court has laid down the tests for determining when a question of law can said to be a substantial question of law within the meaning of article 133 of the Constitution, the Division Bench observed as follows (p. 390 of 59 ITR) :