High Court Of Calcutta
CIT vs. General Electric Co. Of India Ltd.
Sections 37(3), 145, Rule 6D
Ajoy Nath Ray & Maharaj Sinha, JJ.
IT Ref. No. 54 of 1997
1st March, 2002
Counsel Appeared
Agarwal, for the Revenue : Dr. Pal, for the Assessee
ORDER
BY THE COURT :
Six questions were sought to be got referred by the Tribunal at the instance of the Revenue. In regard to questions Nos. 2 to 5, the Tribunal refused to refer. In regard to question No. 1 a reference was made. In regard to the sixth question a reference was made also, but after the Tribunal had reframed the question itself.
The first question referred is as follows : “Whether, on the facts and in the circumstances of the case, the learned Tribunal was justified in deleting the disallowance of Rs. 92,219 made under r. 6D of the IT Rules r/w s. 37(3) of the IT Act?”
The sixth question as reframed and referred to us by the Tribunal is as follows : “Whether, on the facts and in the circumstances of the case, and having regard to the Modvat scheme of excise duty, the Tribunal was right in law in deleting the addition by the AO to the value of the closing stock?”
The problem with regard to the first question arises as follows. Claims for allowance was made by the assessee in respect of travel undertaken by its employees outside the headquarters. The assessee’s case was that as per sub-r. (2) of r. 6D of the IT Rules, such travelling expenditure including hotel expenses could be claimed on an actual basis fully by the assessee provided the aggregate amount so claimed did not exceed the maximum amount provided in the said rule; such maximum amount, according to the assessee, is to be determined for each employee by counting the number of days which the employee took up for such travel, and each such day is to be multiplied by the maximum figure allowed in the said sub-rule. This exercise is to be performed in respect of all travelling employees.
The submission of the Revenue, on the other hand, is that the maximum amount which can be claimed by the assessee for each employee has to be determined in regard to each trip undertaken by such employee. If a particular headquarter to headquarter trip is completed by an employee in, say, ten days and for each day such employee can get a maximum of Rs. 75 as travelling allowance per day, then for that trip the assessee can claim at most Rs. 750 in respect of that employee.
It has been argued for the Revenue that if the employee spends Rs. 720 instead of Rs. 750 actually, then the balance Rs. 30 cannot be carried forward for the next trip even if the said next trip undertaken by the employee for the same assessee during the currency of the same previous year. Therefore, if in the next trip the employee spends Rs. 780 on an actual basis, the assessee can claim only Rs. 750 out of that, because this trip maximum is again Rs.
750, as per the above sub-rule.
4. The material portion of the said sub-rule, as it stood at the material time is quoted below : “(2) The allowance in respect of expenditure incurred by an assessee in connection with travelling by an employee or any other person within India outside the headquarters of such employee or other person for the purposes of the business or profession of the assessee shall not exceed the aggregate of the amounts computed as hereunder : (a) in respect of travel by rail, road, waterway or air, the expenditure actually incurred; (b) in respect of any other expenditure (including hotel expenses or allowances paid) in connection with such travel, an amount calculated at the following rates for the period spent outside such headquarters;
5. r. Agarwal appearing in support of the Revenue, relied upon no fewer than two High Court decisions for his clients. The first is the case of CIT vs. Coramandel Fertilisers Ltd. (1996) 135 CTR (AP) 354 : (1996) 220 ITR 298 (AP) : TC S17.1921. Their Lordships said this, near the end of the judgment : “The actual expenditure incurred on each trip has to be ascertained with reference to the provisions of r. 6D. The unit of expenditure for purposes of r. 6D is the trip but not the individual employee. Therefore, it necessarily follows that the expenditure incurred by the assessee will have to be taken into consideration with reference to each trip of an individual employee but not with reference to the totality of the trips made by an individual employee. In our view, the Tribunal is not correct in coming to the conclusion that the ITO has to compute the disallowance under r. 6D with reference to the expenditure incurred by each employee for the whole year as claimed by the assessee. In this view of the matter, the third question is answered in the negative, i.e., in favour of the Revenue and against the assessee.”
The next case is a decision of the Madras High Court reported in the case of CIT vs. Ashok Leyland Ltd. (2002) 253 ITR 425 (Mad). In this case, their Lordships said as follows : “The intent of the rule clearly is that the computation required to be made under the rule is to be made separately for each travel undertaken by the employee and the amount that can be claimed as deduction for the year is the aggregate of the amounts so calculated separately for each travel undertaken by the employee.” After hearing Dr. Pal, appearing for the assessee, we are unable to accede to the arguments of Mr. Agarwalla and, though most respectfully, we feel absolutely compelled to differ from the views taken by the Hon’ble High Courts at Andhra Pradesh and Madras.
In the rule quoted above there is nothing to indicate that an assessment year has to be further cut up within itself into different trips which are undertaken by different employees. We quite understand that if an employee’s maximum amount on the days of travel is not spent in one particular previous year, then the amount “saved” cannot be carried forward to the next succeeding previous year for increasing the limit allowable. Such carrying forward requires very special permission and mandate of the IT Act and none such is to be found here. But, if the employee’s travel is to be sub-divided even within the same assessment year as per the number of trips undertaken by him and such sub-division goes against the interest of the assessee, then for that sub-division also some clear indication or express word must be available in the rule itself. If we were to pursue the argument of such sub- division to the extreme, it might also be argued that even within one trip if one day’s expense exceeds, say Rs. 75, given on the right column, and another day’s expense falls short of it, both within the same trip, even then the employee cannot claim Rs. 150, even if it is actually spent and even if it is actually spent in two days only.
We are of the opinion that this is not the true construction of the said rule. The words “aggregate of the amounts” mentioned in the said sub-rule refers to the aggregate for the assessment year. Such aggregate is to be found out from the number of days, the maximum expense permitted per day and the number of employees involved. On the basis of actuals this aggregate amount, even if exceeded, is the ceiling limit of allowance permissible, but within such aggregate amount it little matters what one particular employee spent on one day of travel and what he (the same employee) spent on another.
If it were the intention of the rule-making authority to limit the allowable expense per day per employee, or per trip per employee, and not merely to limit the allowable expense of the assessee in the aggregate for the assessment year in question taken together, then absolutely different words should have been used by the rule-making authority in the said rule. Thus, we answer question No. 1 in the affirmative and in favour of the assessee.
8. Regarding question No. 6, we are already bound by our own judgment given in the case of Berger Paints (IT Ref. No. 46 of 1993) [reported as CIT vs. Berger Paints (India) Ltd. (2002) 174 CTR (Cal) 269—Ed.], where we followed the Supreme Court case of Collector of Central Excise vs. Dai Ichi Karkaria Ltd. (1999) 156 CTR (SC) 172 : (1999) 7 SCC 488. Thus, we answer the said question also in the affirmative and in favour of the assessee.
[Citation : 255 ITR 22]