High Court Of Rajasthan : Jaipur Bench
CIT vs. Jaipur Udyog Ltd.
Sections 32(1), 37(1)
Asst. Year 1971-72
Y.R. Meena & Shashi Kant Sharma, JJ.
IT Ref. No. 8 of 1986
24th February, 2004
Counsel Appeared
Mrs. Parinitoo Jain, for the Revenue : None, for the Assessee
JUDGMENT
By the court :
The following questions are referred for the opinion of this Court :
“1. Whether, on the facts and circumstances of the case the Tribunal was right in holding that the garden building and the furniture thereon were modes of advertisement to the assessee-company and the assessee was entitled to depreciation thereon ?
2. Whether the learned Tribunal was right in law in holding the expenditure incurred on maintenance of gardens and depreciation on garden building, furniture and other accessories as deductible expenditure under s. 37 r/w ss. 28 and 32 of IT Act, 1961 ?”
2. The relevant assessment year is 1971-72. The assessee has declared income of Rs. 25,05,550. During the course of assessment, the AO has noticed that assessee has claimed expenses on account of garden maintenance at Delhi, Jaipur and Sawaimadhopur. After considering the submissions, the AO was of the view that the expenses are not wholly and exclusively for the purpose of business so far the garden maintenance at Sawaimadhopur and Jaipur is concerned and the expenses incurred on garden maintenance at Delhi, that has nothing to do with the business of the assessee. The relevant observations of the AO in para 30 read as under : “An amount of Rs. 3,82,343 has been debited on maintenance of gardens/office lawns in the asst. yr. 1971-72. The gardens are maintained at Sawaimadhopur, Jaipur and Delhi. The position of each of the gardens is discussed as under : (a) At Sawaimadhopur, total expenditure during this year is Rs. 47,650 as against Rs. 46,209 last year. The assessee- company is having a cement factory and also offices and quarters of officers. The company has maintained lawns, rose gardens. It is stated that the employees and their dependants visit the said gardens. However, it has been noticed that the expenses are not fully for the employees. The assessee maintains a guest-house at Sawaimadhopur and some of the expenses of the maintenance of lawns and gardens are also for the residence of the officers. In one case of purchase made from M/s Jai Agro Industries Ltd. for Rs. 1,535 the bill has been debited to the Sawaimadhopur account but the date of supply has not been mentioned in the bill. It is not clear as to when the goods were received and where the goods were put to use. Whether there is any register for the seeds and plants being maintained is not clear because no such register has been produced before me. Looking to these facts, I think, out of the expenses of Rs. 47,650 an amount of Rs. 20,000 should be disallowed. (b) An amount of Rs. 50,727 has been claimed for gardening expenses at Jaipur office. It was given in writing that the assessee has a liaison office at Jaipur. The employees of other offices visit Jaipur very often. The lawns maintained are around the office building and has garden of rose and other flowers. Office lawns are used by Rajasthan Chamber of Commerce & Industry for holding seminars and parties, etc. On this ground the amount is claimed to be allowable. I have gathered that the assessee’s building at Jaipur has office of its own and also of : (1) R.K. Hotels (2) Jai Agro Industries Ltd. (3) Mukul Trading Co. (P) Ltd. for some time (4) Sahu Minerals & Properties Ltd. (5) Alok Udyog Services Ltd.
The record regarding the receipt of seeds, plants, etc. and their despatches are not known because no such register has been produced before me. The assessee has a guest-house at Jaipur also and the expenses on the maintenance of lawns and gardens at guest-house has also been charged to the gardening expenses. The Jaipur gardens are not maintained for the benefit of the employees wholly. The fact that the gardens are used for meetings and seminars of Rajasthan Chamber of Commerce & Industry and others is hardly relevant for the assessee’s business. The expenditure should be judged from the business angle and not from other’s point of view. Looking to these facts, I shall disallow a sum of Rs. 25,000 from the total expenses claimed on account of Jaipur gardening. (c) Delhi gardening expenses—Rs. 2,83,965 (i) The assessee has maintained a garden known as Bijwasan garden which is near Palam, about 10 miles away from the office of the company. A written reply has been filed wherein it has been stated that the company is maintaining a small club garden at Bijwasan near Palam. The said garden is used as club by the officers and staff members of the company. The company has control office at Delhi employing in all about 100 persons. It has been admitted that a portion of the garden is also used by the public. The contention throughout the written submission says that the maintenance of garden at Delhi is primarily for the welfare of the employees. (ii) In the statement of expenses filed, it has been stated that an amount of Rs. 55,650 has been debited under the head ‘gardening’ though they are expenses debitable to other heads. Out of this an amount of Rs. 53,911 is debitable to the Delhi gardens and the balance to Sawaimadhopur. The assessee says that these expenses are on account of building repairs, travelling, conveyance, etc. and, therefore, it should not be treated as part of the gardening expenses and allowed fully. (iii) The submission put forth before me that the maintenance of garden is primarily for the welfare of the employees is not correct. The total number of employees is about 100 at Delhi and the garden maintained is about 10 miles from the office of the company. Delhi has a number of public gardens and it looks little off the way to assume that the employees of the company would make it a point to visit the company’s garden only when they are off-duty or on holidays. As the public do, the employees might visit quite casually. The business does not need any maintenance of garden at Delhi, like Sawaimadhopur and Jaipur. In Jaipur, the garden is in the office premises itself and at Sawaimadhopur, it is a small town, there are number of factory workers and the garden is in the near vicinity which the workers do use. These facts are not applicable to the Delhi garden. There, as mentioned above, the number of officials is very small. Not only that the expenses are prima facie disallowable because of the above thing, but I have seen that the assessee has not been able to bring before me any register of Delhi gardens whereby it could be seen as to what type of plants have been received, where they have been used, at whose bungalow (majority of the senior officers are posted at Delhi) and when the goods were received. I had an occasion to go through the bills of Jai Agro Industries who claims to have sold plant seeds, roses to the Jaipur Udyog Ltd. The bills have date of 31st March, 1971 only and the dates of issue and receipt of goods are not known. The mode of transport is not known. I called for one bill SJV 93 of 26th March, 1971 for Rs. 16,470 but the same was not produced. It has been debited under the consultation fees paid to the director of its subsidiary Jai Agro Industries Ltd. amounting to Rs. 12,000. Some capital expenditure is also there (refer Vr. No. SJV 616 dt. 31st March, 1971) being cost of canvas court tent Rs. 6,115). (iv) The above facts only show that Delhi gardens are not at all required from employees’ welfare angle. It is maintained for considerations other than business. It is a public garden. I, therefore, disallow the whole sum claimed at Rs. 2,83,965. Regarding the claim that Rs. 53,911 have been debited to the gardening expenses though pertaining to other head is also rejected because these expenses are all for the purposes of gardening which is not for business considerations. Depreciation on the garden building is also not allowed.”
3. In appeal before the AAC, the AAC has considered this aspect and, in para 69 of his order after considering the material on record, he was also of the view that when the expenses were not wholly and exclusively for the purpose of business, part of that claim on account of expenses has been rejected rightly. The relevant part of that order reads as under : “However, all these factors have already been taken into account while deciding the percentage of allowable expenses out of the expenses claimed at Sawaimadhopur and Jaipur in asst. yrs. 196869 and 1970-71. No new circumstance has been pointed out by Shri Ganeshan. The ITO has allowed expenses which are slightly more than 50 per cent. The disallowance made by the ITO is reasonable and does not call for any interference. This ground of appeal is, therefore, dismissed.”
On the same ground when the expenses were not wholly and exclusively for the purpose of business, depreciation on the capital assets was also rejected.
In appeal before the Tribunal, the Tribunal though had admitted that the expenses may not have direct nexus with the business but the maintenance of the gardens have some impact on the image of the company. The relevant observation of the Tribunal is in para 13 of its order and the Tribunal has allowed the claim of the assessee.
None appeared for the respondent. Heard learned counsel for the Department, Mrs. Parinitoo Jain.
The facts are not in dispute that after a detailed discussion, the AO as well as the AAC found that the expenses incurred on the maintenance of the garden at Sawaimadhopur and Jaipur, are not wholly for the purpose of business. Considering the discussions of the AO, we see no justification to allow the entire expenses on the maintenance of gardens at Jaipur and Sawaimadhopur when the expenses are not incurred wholly for the purpose of business. Even the Tribunal has accepted that the expenses may not have a direct role to play in the manufacturing activity but have some impact on the image of the company. That is all irrelevant. The maintenance of any garden has hardly anything to do with the business or profit from business. When the gardens are not maintained for the purpose of business, then there is no question of allowing such type of expenses for the purpose of business. The Tribunal has erred in allowing such type of expenses for the purpose of business.
7. So far the finding in case of expenses on the garden maintained at Delhi, the AO as well as AAC found that the maintenance of the garden at Delhi has nothing to do with the business. Even there was no material before the Tribunal to co-relate it for the purpose of business. In the absence of that, the expenses incurred on maintenance of garden at Delhi should not be allowed. From the material brought on record, we also found that finding of fact of the AO as well as of AAC is not perverse. When the gardens were not maintained for the purpose of business, the Tribunal has committed error again in allowing the depreciation on the assets which form the part of such gardens.
In the result, we answer the questions in negative, i.e., in favour of the Department and against the assessee. The reference is disposed of accordingly.
[Citation : 272 ITR 349]
