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Commissioner of Income-tax Vs. Sirpur Paper Mills - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtAndhra Pradesh High Court
Decided On
Case NumberCase Referred No. 93 of 1970
Judge
Reported in[1983]144ITR393(AP)
AppellantCommissioner of Income-tax
RespondentSirpur Paper Mills
Excerpt:
.....expended towards maintenance of guest house claimed as deduction under section 10 (2) (xv) being business expenditure - claim rejected by income tax officer on ground of assessment of expenditure as entertainment tax - said guest house used for boarding and lodging facilities of employees of assessee - barest minimum which was provided is not any amusement or gratification - held, tribunal justified in allowing deduction being business expenditure. (ii) bad debt - section 10 (2) (xv) of income-tax act, 1922 - amount advanced to employees' co-operative society becoming irrecoverable on liquidation of society - irrecoverable amount claimed as bad debt - amount claimed as bad debt is not debt advanced in respect of trade or business of assessee - irrecoverable amount would not inflate..........the circumstances of the case, thesum of rs. 40,745 was deductible from the assessee's income as a businessexpenditure ?' 2. the assessee is a company manufacturing paper at sirpur and the assessment year in question is 1961-62. during the relevant year a total sum of rs. 31,126 was shown as expenditure for maintaining a guest house at sirpur and a deduction was claimed under section 10(2)(xv) of the indian i.t. act, 1922, from the income of the assessee as business expenditure. this was rejected by the ito, while on appeal, the aac held that there was an essential difference between entertainment expenditure and expenditure over guest house as the guest house was maintained by the assessee in order to conduct its day to day business as sirpur is an out of the way place and allowed this.....
Judgment:

A.D.V. Reddy, J.

1. The two questions referred to us, one at the instance of the Department and the other at the instance of the assessee, are as follows :

'1. Whether, on the facts and in the circumstances of the case, the amount expended by the assessee for the maintenance of a guest house at Sirpur is entertainment expenditure within the ambit of the proviso to section 10(2)(xv) of the Income-tax Act, 1922 ?

2. Whether, on the facts and in the circumstances of the case, thesum of Rs. 40,745 was deductible from the assessee's income as a businessexpenditure ?'

2. The assessee is a company manufacturing paper at Sirpur and the assessment year in question is 1961-62. During the relevant year a total sum of Rs. 31,126 was shown as expenditure for maintaining a guest house at Sirpur and a deduction was claimed under Section 10(2)(xv) of the Indian I.T. Act, 1922, from the income of the assessee as business expenditure. This was rejected by the ITO, while on appeal, the AAC held that there was an essential difference between entertainment expenditure and expenditure over guest house as the guest house was maintained by the assessee in order to conduct its day to day business as Sirpur is an out of the way place and allowed this deduction and the deduction was upheld by the Tribunal. Hence the reference on this question at the instance of the Department.

3. The Tribunal has also found that Sirpur is an out of the way placeand that as there are no boarding and lodging facilities for its constituents and its employees or such other persons who go there for thepurpose of business with the company, the assessee has to provide themwith food and shelter and it was the barest minimum that was being provided, and this obviously did not amount to providing any amusement orgratification, that it was merely giving them food and shelter and, therefore, it should be allowed as a business expenditure. We do not see anyreason to differ from the conclusion reached by the Tribunal. This question is, therefore, answered in favour of the assessee.

4. The second question relates to an amount of Rs. 40,745 advanced by the assessee to the Employees' Co-operative Society, Sirpur, which was being run for the benefit of the assessee's employees and this amount of Rs. 40,745 became irrecoverable as the society had to be finally liquidated, and the amount was claimed as a bad debt for the assessment year 1955-56. This claim was not allowed by the ITO. On appeal, the AAC allowed this item while the Tribunal, on further appeal, disallowed the same. Hence, the reference at the instance of the assessee.

5. It is rightly contended by the learned counsel for the Department that if it is an expenditure incurred in respect of its business, it should have been claimed during the relevant assessment year and this obviously has not been done and if it is claimed as a bad debt, it should be a debt advanced in respect of the trade or business of the assessee. In A. V. Thomas & Co. Ltd. v. CIT : [1963]48ITR67(SC) , it was pointed out that a loan to be treated as a debt and the same to be allowed as a deduction under Section 10(2)(xv) of the Act, it should be a debt, which, if good,would have swelled the taxable profits of the assessee. In this case it isobviously not a debt of that type as the recovery of that debt would notin any way go to swell the taxable profits of the assessee. Therefore, itis not a trade debt or a business debt as such and no deduction can beclaimed with regard to the same. The Tribunal was, therefore, right indisallowing this claim.

6. This question is, therefore, answered against the assessee. There willbe no order as to costs.


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