CIT Vs. PUNJAB TRACTORS LTD

JUDGEMENT

(1.) The Tribunal, Chandigarh Bench, Chandigarh (hereinafter referred to as "the Tribunal"), at the instance of the revenue, pursuant to the directions of this Court, issued vide order dated 20-7-1993, in petition filed under Section 256(2) of the Income Tax Act, 1961 (hereinafter referred to as "the Act"), has referred the following question of law for the opinion of this Court:

(2.) The dispute referred to herein pertains to the assessment year 1980-81. The Assessee-Respondent, while filing its revised return, excluded certain expenditure made on entertainment and on account of gifts. The assessing officer disallowed the expenditure of Rs. 1,51,570 pertaining to tractors gifted to foreign Governments, under Rule 6B of the IT Rules, 1962 (hereinafter referred to as "the Rules"). This expenditure was held to be disallowable by the assessing officer as business expenditure as well as for purpose of weighted deduction under Section 35B of the Act. The disallowance of the expenditure was upheld vide order dated 16-8-1985 by the Commissioner (Appeals), Chandigarh.

(3.) The Assessee carried the matter before the Tribunal. The Tribunal also, vide order dated 25-4-1990, upheld the disallowance of the expenditure. Subsequently, the Assessee moved a miscellaneous petition. The Tribunal on reconsideration of the matter recalled its order dated 25-4-1990 and deleted the disallowance of the expenditure vide order dated 26-6-1991, on the ground that the tractors sent by the Assessee to foreign trade fairs were subsequently given to the foreign Governments and to the delegates of the foreign countries, as gifts. The cost of the tractors was Rs. 1,45,970 and a sum of Rs. 5,600 was the freight and packing charges etc. The Tribunal observed that it was uneconomical to bring back the tractors to India and, therefore, the expenditure incurred by way of gifts is liable to be treated as expenditure incurred for the purpose of business. The Tribunal observing further that it was not an expenditure on advertisement but incidental to the carrying on the business held the said amount allowable under Section 37(1) of the Act.