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DALMIA BISCUITS P LTD. VERSUS COMMISSIONER OF INCOME-TAX

    Decided On, 27 January 1992

    At, High Court of Punjab and Haryana

    By, THE HONOURABLE MR. JUSTICE S.S. SODHI & THE HONOURABLE MR. JUSTICE G.C. GARG

    For the Appearing Parties: Aparna Mahajan, Pooja Sharma, R.P. Sawhney, S.S. Mahajan, Advocates.



Judgment Text

(1) THE matter here concerns the extent of permissible deductions in respect of expenditure incurred by the assessee in connection with proceedings before the relevant authorities under the Income-tax Act, 1961, or in court, relating to determination of liability under the said Act, by way of tax, penalty or interest.

(2) THE controversy raised pertains to the assessment year 1977-78.

(3) THE points in issue rest upon the interpretation of the provisions of Section 80vv of the Income-tax Act, 1961 (hereinafter referred to as "the Act"), which is in the following terms :

"in computing the total income of an assessee, there shall be allowed by way of deduction any expenditure incurred by him in the previous year in respect of any proceedings before any income-tax authority or the Appellate Tribunal or any court relating to the determination of any liability under this Act, by way of tax, penalty or interest : Provided that no deduction under this Section shall, in any case, exceed in the aggregate five thousand rupees. "

(4) THE Income-tax Officer computed expenses incurred by the assessee on legal proceedings at Rs. 40,431. Having regard to the provisions of Section 80w of the Act, the allowable deduction under this head was limited to Rs. 5,000. The assessee's claim for deduction in respect of the remaining amount of Rs. 35,431, was accordingly disallowed. On appeal, the Appellate Assistant Commissioner allowed a further deduction of Rs. 1,500 on the ground that this expenditure had been incurred for professional services relatable to accountancy matters. The Tribunal, on its part, upheld the disallowance of expenses incurred on legal proceedings to the extent of Rs. 33,931 and thereby approved what the Appellate Assistant Commissioner had done.

(5) ON the legal issue raised, three questions have now been referred to this court for its opinion. These being :

"1. Whether, on the facts and in the circumstances of the case, the Tribunal was legally correct in holding that the provisions of Section 80vv of the Act necessarily exclude the allowance of bona fide expenditure of the nature specified in the said Section even if such expenditure were incurred wholly and necessarily for the purpose of the assessee's business ?

2. Whether, having regard to the fact that Section 80vv of the Act was brought on the statute book with effect from April 1, 1976, the Tribunal did not err in law in not excluding the expenditure referable to assessment years earlier than 1976-77 from the scope of the restrictions imposed by the said Section ?

35. Whether, on the facts and in the circumstances of the case, the Tribunal was legally justified in rejecting the assessee's contentions that the limitation embedded in Section 80vv of the Act is applicable separately to expenditure referable to proceedings for each assessment year and not to the total expenditure incurred during a single year irrespective of the number and nature of the proceedings ?"

(6) A reading of the order of the Tribunal would show that the aspect of the expenses incurred by the assessee on legal proceedings being bona fide or necessary for his business had not been raised. No occasion is thus provided for any adjudication upon this matter. Question No. 1, has, thus, to be returned unanswered.

(7) IN dealing with the other two questions raised, besides keeping in view the plain language of Section 80vv of the Act, it is also pertinent to note that a consequential amendment had also been made in Section 37 of the Act to provide that any expenditure of the nature described in Section 80vv of the Act would not be allowed as a deduction under this Section, namely, Section 37 of the Act.

(8) ON a plain reading of the provisions of Section 80vv of the Act, it will be seen that it merely limits the extent to which deductions would be permissible in respect of legal proceedings taken by an assessee with regard to tax, penalty or interest, demanded or payable by him under the Act. Reading these provisions with the clear language of Section 37 (1) of the Act, there can be no escape from the conclusion that even bona fide expenditure which would otherwise be deductible under Section 37 of the Act has deliberately been kept down under Section 80w of the Act to a maximum extent of Rs, 5,000.

(9) FURTHER, the words "any expenditure incurred by the assessee in the previous year" cannot, but admit of the interpretation that

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this means the total expenditure incurred during the previous year and not Rs. 5,000 in respect of each assessment year as was sought to be argued by the counsel for the assessee. A similar view has also been expressed by the High Court of Calcutta in Indian Oxygen Ltd. v. CIT [1987] 164 ITR 466. (10) IN the result, questions Nos. 2 and 3 arc hereby answered in favour of the Revenue and against the assessee. This reference is answered accordingly. There will, however, be no order as to costs.
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