High Court Of Delhi
CIT vs. Modern Bakeries India Ltd.
Sections 37(2B), 80J
Asst. Year 1974-75, 1975-76
B.C. Patel, C.J. & Badar Durrez Ahmed, J.
IT Ref. Nos. 404 & 405 of 1983
29th July, 2004
Counsel Appeared
R.D. Jolly with Ms. Rashmi, for the Appellant : Rajat Naval, for the Respondent
JUDGMENT
B.C. Patel, C.J. :
At the instance of the Revenue for the asst. yrs. 1974-75, 1975-76, two questions are referred in these two references for opinion of the Court. The questions are as under :
(i) Whether, on the facts and in the circumstances of the case, the Tribunal is correct in law in confirming the order of the CIT(A) in deleting the disallowance ofentertainment expenditure made by the ITO to the extent of Rs. 98,007/Rs. 47,921 in the asst. yrs. 1974-75, 1975-76, respectively, despite the express provisions contained in s. 37(2B) of the IT Act?
(ii) Whether, on the facts and in the circumstances of case, the Tribunal is correct in law in confirming order of the CIT(A) in holding that the cost of machinery amounting to Rs. 62,32,350/Rs. 2,41,646 for asst. yrs. 1974-75/1975-76, respectively, gifted by the Government of Australia to the Government of India and shown in the balance sheet of the assesseecompany as a liability owed to the Government of India, should be included as capital employed by the assessee for the purpose of computation of deduction admissible under s. 80J of the IT Act ?
So far as question No. 1 is concerned, the CIT(A) has held that the expenditure incurred by the assessee cannot be held entertainment expenditure as stipulated within the meaning of s. 37(2B) of the IT Act, 1961. The Tribunal on considering the evidence placed on record and on facts arrived at a conclusion that the expenditure incurred cannot be treated as entertainment expenditure. Sec. 37(2B) refers to expenditure incurred by the assessee in the nature of entertainment. On facts the Tribunal has arrived at a conclusion that s. 37(2B) of the Act is not applicable. Therefore, in the opinion of the Court, the question does not arise and, therefore, reference insofar as question No. 1 is concerned, is returned unanswered.
So far as question No. 2 is concerned, the same is required to be answered in favour of the assessee. The CIT(A) held that “the value of machineries is payable to the Government of India in the form of shares of the assessee did form part of capital and did not represent liabilities payable.” The Tribunal has also examined these aspects and has quoted the contents of a letter addressed by the Government of India in this behalf as under :
“In pursuance of art. 7 of the articles of association of the Modern Bakeries (India) Ltd., I am directed to convey the approval of the President to the increase of share capital of the company from Rs. 1 crore to Rs. 2.13 crores by creation of new shares of Rs. 1,000 each.” Share certificates against the increased capital will have to be issued in favour of Government of India against the cost of material and equipments supplied by the Government to the company.” On 23rd July, 1968 Government of India addressed a letter as under : “In the books of account of Modern Bakeries (India) Ltd., the plant and equipment will appear at full value and pending allotment of fully paid shares to Government the amount may be shown as ‘suspense’ item pending for allotment of shares. Subject to ss. 33(1)(b) and 43 of the IT Act, 1961, the development rebate may be claimed on the total cost of the plant and machinery.”
5. The Tribunal arrived at a finding “that the Government supplied the plant and machinery the cost of which was paid not in cash but in the form of share capital. Therefore, it leaves no doubt to think that the machinery became part and parcel of the assets of the assessee-company and it cannot be considered to be the liabilities due to the Government of India.” In view of what is indicated herein, the answer is required to be given in favour of the assessee and against the Revenue. The references are disposed of accordingly with no order as to costs.
[Citation : 273 ITR 237]
