COMMISSIONER OF INCOME TAX Vs. OIL INDIA LTD

JUDGEMENT

(1.) The Tribunal has referred to this court the following questions for determination :

(2.) The facts leading to this reference, inter alia, are that the assessee is a limited company and the assessment year involved is 1972-73 for which the previous year ended on December 31, 1971. The assessee had filed, along with the return of income, a statement showing the computation of disallowance under Section 40A(5) of the Act. While computing the disallowance under Section 40A(5), the assessee-company had deducted 8/12ths of the expenditure incurred on the maintenance of residential accommodation provided to the executives and 1/12th of depreciation in respect thereof aggregating to Rs, 1,84,127 on the ground of non-user by the employees during the leave period of one month. This claim of the assessee-company was disallowed by the Income-tax'Officer who pointed out that there was no evidence io show that each such employee left the bungalow or the accommodation with all family members with bag and baggage and that the bungalow was used for any purpose other than as residence of the employees of the company. Against this action of the Income-tax Officer, the assessee preferred an appeal to the Commissioner of Income-tax (Appeals). It was contended before him that the perquisites of the executives in respect of rent-free bungalows, the bungalow, furniture, etc., should be calculated as if these were available to them only for a period of eleven months. It was stated that the executives were on leave for one month during the relevant previous year and, therefore, were not enjoying the perquisites for a month. This plea of the assessee was not found acceptable to the Commissioner of Income-tax (Appeals). He disallowed the assessee's claim and upheld the Income-tax Officer's action. In further appeal, the Tribunal, after observing that the bungalows were partly used by the employees and partly used for the business of the assessee-company, held that 50 per cent. of the amount as referred to above should be taken into account for the purpose of computation of disallowance under Section 40A(5) of the Act. The Income-tax Officer disallowed Rs. 12,294 out of travelling expenses under Section 37(3) of the Act. On appeal, the Commissioner of Income-tax (Appeals) held that the above sum was properly disallowable under Rule 6D of the Income-tax Rules, 1962, and confirmed the disallowance made by the Income-tax Officer. The Income-tax Officer also disallowed Rs. 20,608 as entertainment expenses under Section 37(2B) of the Act out of the total expenses of Rs. 61,825 claimed. The Commissioner of Income-tax (Appeals) confirmed the disallowance after mentioning that no details had been furnished in support of the contention that the said sum of Rs. 61,825 did not include any entertainment expenses. On further appeal by the assessee-company, the Tribunal held that the expenditure was incurred by the assessee in the field. Drilling was going on as per schedule and, therefore, the disallowance of the expenditure by the Income-tax Officer was not proper. The Tribunal, after taking note of Clause 12 of the second supplemental agreement on which the assessee relied, deleted the disallowances under Sections 37(3) and 37(2B) as sustained by the Commissioner of Income-tax (Appeals). The assessee had claimed deduction under Section 80-I of the Act in respect of a sum of Rs. 42,64,311 which represents its income from transportation of crude oil belonging to the Oil and Natural Gas Commission. This claim of the assessee was negatived by the Income-tax Officer. On appeal, the Commissioner of Income-tax (Appeals) upheld the order of the Income-tax Officer. On further appeal by the assessee, the Tribunal, following its decision in the assessee's own case for the assessment year 1971-72 in I. T. A. No. 2707/(Cal) of 1979, directed the Income-tax Officer to allow the relief under Section 80-I. The assessee showed, drilling expenditure of Rs. 2,72,94,678 and claimed development rebate at 25 per cent. of the said amount at Rs. 68,23,670 by filing the return on August 14, 1978. This claim of the assessee was refused by the Income-tax Officer on the ground that the assessment was not made in the ordinary way but in terms of the second supplemental agreement dated July 27, 1961, under which the entire drilling expenditure of Rs. 2,72,94,678 incurred in respect of the oil wells had been allowed as deduction. On appeal, the Commissioner of Income-tax (Appeals) upheld the Income-tax Officer's action. He pointed out that the oil wells did not constitute plant in the assessee's business of production of crude oils and, therefore, development rebate was not admissible. On further appeal, the Tribunal, after considering various case-laws and the circular relied on by the assessee, held that the oil well was the plant of the assessee which turned the output into money values which, in turn, became the income of the assessee and, therefore, the assessee was entitled to development rebate even though the whole of the expenditure was allowed as revenue expenditure. The Tribunal thus referred the matter back to the Income-tax Officer to allow development rebate provided the assessee satisfied the other conditions.

(3.) So far as question No. 1 is concerned, it appears as already noted that the assessee had filed along with the return of income a statement showing the computation of disallowance under Section 40A(5) of the Act. While computing the disallowance under Section 40A(5), the assessee-company had deducted 8/12ths of the expenditure incurred on the maintenance of residential accommodation provided to executives and 1/12th of depreciation in respect thereof aggregating to Rs. 1,84,127 on the ground of non-user by the employees during the leave period of one month. This claim of the assessee-company was disallowed by the Income-tax Officer since there was no evidence to show that each such employee left the bungalow or the accommodation with all his family members and bag and baggage and that the bungalow was used for any purpose other than for the residence of the employees of the company. The assessee preferred an appeal to the Commissioner of Income-tax (Appeals ). It was contended on behalf of the assessee that perquisites of the executives in respect of the rent-free bungalows, the bungalow furniture should be calculated as if these were available to them only for a period of eleven months, and it was urged that the executives were on leave for one month during the relevant previous year and, therefore, were not enjoying the perquisites for one month. This plea of the assessee was not accepted by the Commissioner of Income-tax (Appeals). In further appeal to the Tribunal, it was observed that the bungalows were partly used by the employees and partly used for the business of the assessee-company. It was held that 50 per cent. of the amount as referred to above should be taken into account for the purpose of computation of disallowance under Section 40A(5) of the Act.