1. This appeal has been filed by the assessee against the order dated 31-7-1981 of the Commissioner (Appeals). The assessee is an individual deriving income from profession as a Chartered Accountant. The assessment year involved in this appeal is 1978-79. The year ending 31-3-1978 was the relevant previous year.
2. The only ground taken in this appeal is that the disallowance of a sum of Rs. 3,393 out of the travelling expenses of Rs. 9,933 incurred by the assessee during the previous year under consideration was not justified. The ITO scrutinised the travelling expenses incurred by the assessee, and found that out of seventeen tours in all, there were excess payments in respect of eight tours; excess, in relation to the amounts laid down under Rule 6D of the Income-tax Rules, 1962, read with Section 37(3), of the Income-tax Act, 1961 ('the Act'). The amounts spent on these eight tours by the assessee came to Rs. 7,458.
The ITO calculated the amount allowable under Rule 6D in respect of these eight tours to be only Rs. 2,000. He, therefore, allowed a sum of Rs. 2,000 and disallowed the balance of Rs. 5,458 while computing the assessee's income from profession.
3. The assessee appealed to the Commissioner (Appeals), and contended that the action of the ITO was not justified. The Commissioner (Appeals) found that the rates allowed by the ITO were lower than the rates admissible under Rule 6D. Further, there was no justification to disallow a sum of Rs. 830 being the air fare. In this view of the matter, he gave some relief to the assessee, but confirmed the balance of the disallowance of Rs. 3,393 pertaining to seven out of the eight tours listed by the ITO in his order. In this appeal, we are concerned with the disallowance of this sum of Rs. 3393 relating to the aforesaid seven tours. This amount of Rs. 3,393 has been arrived at as the excess of the amounts prescribed under Rule 6D(2)(b).
4. Shri H.R. Karr.dar, the learned representative for the assessee, urged before us that the Commissioner (Appeals) erred in confirming a portion of the disallowance made by the ITO. He urged that the language of Section 37(3) did not apply to a case where the assessee himself has incurred the travelling expenses. According to him, the restriction on the allowance of travelling expenses is limited to the 'employees or any other persons'. The word 'employees' evidently will not take in the present assessee before us because he is the sole proprietor and the travelling expenses under consideration were incurred by himself.
Further, according to Shri Kamdar, the assessee will not come under 'any other person' either, because, the other persons envisaged under the phrase 'any other person' are those who were not employees of the assessee like his agents, legal advisors or some other persons doing casual work for the assessee. His point was that the assessee himself would not come under the phrase 'employees' or 'any other person' appearing in Section 37(3). Hence, he urged that the revenue authorities erred in disallowing a portion of the travelling expenses incurred by the assessee himself by invoking Section 37(3), when the said provisions were not at all applicable to the facts of this case.
In support of his contention, he drew our attention to Sub-clause (iii) of Rule 6D(2)(b) for the proposition that the assessee himself is excluded under Section 37(3).
5. Without prejudice to the above, Shri Kamdar has advanced before us an alternative argument. He stated that even assuming that Section 37(3) and Rule 6D apply to the facts of the present case, there is nothing therein to apply Rule 6D to each and every tour separately. His case was that for every person, all the tours made during the previous year should be consolidated and the total amounts spent should be considered together in relation to the amounts prescribed under Rule 6D(2)(b). Consequently, excess expenditure in certain tours may be offset by any deficits from the maximum permissible expenses in other tours. He placed a statement before us which shows that if all the tours made by the assessee are taken together, then the excess of the expenditure over the amount admissible under Rule 6D(2)(b) comes to Rs. 503 only (vide page 17 of the paper book filed by the assessee).
Further, he placed a copy of the order passed by Bombay Bench 'C of the Tribunal in IT Appeal No. 2153 (Bom.) of 1979 and other appeals in the case of Hindustan Export & Import Corporation (P.) Ltd. wherein a similar point has been decided in favour of the assessee. In that order, the Tribunal had taken into account certain other earlier orders of the Tribunal, wherein the same conclusion had been arrived at.
6. Shri A.K. Nagpal, the learned representative for the department, on the other hand, supported the order of the Commissioner (Appeals). He stated that Section 37(3) applies to all persons including the assessee. The reason as to why the word 'assessee' was not stated in Section 37(3) was, according to him, that all assessees who are not natural persons could not travel. For example, a company or a firm or a HUF cannot travel, but expenses on travelling incurred by anybody on their behalf, would be hit by Section 37(3). He stated that the provision of Section 37(3) has to be understood in the context in which it appears having regard to the scheme of the Act. In particular, he pointed out that this section has been enacted in order to avoid tax evasion by debiting excessive travelling expenses to the business carried on by the assessee. In that context, he argued that it is immaterial if the expenses were incurred either by the assessee or by anybody else so long as they are debited to the business. Regarding Clause (iii) of Rule 6D(2)(b), he stated that it merely refers to the amount admissible in the case of any other person which definitely includes the assessee. His case was that from the mere fact that in the case of any other person, the amount to be allowed has been fixed as the same which is admissible to the highest paid employee of the assessee, it cannot be said that the assessee does not come under 'any other person'. Regarding the alternative contention raised by the assessee, he urged that the decision of the Tribunal, relied on by the assessee has not been accepted by the department, and it required reconsideration.
7. We have considered the contentions of both the parties as well as the facts on record. In our opinion, the main argument raised by the assessee does not carry any force. Section 37(3) reads as below: (3) Notwithstanding anything contained in Sub-section (1), any expenditure incurred by an assessee after the 31st day of March, 1964, on advertisement or on maintenance of any residential accommodation including any accommodation in the nature of a guest-house or in connection with travelling by an employee or any ot.her person (including hotel expenses or allowances paid in connection with such travelling) shall be allowed only to the extent, and subject to such conditions, if any, as may be prescribed.
We do not find anything in the above section to suggest that an assessee carrying on business as sole proprietor is excluded from its purview. We are not impressed with the argument raised for the assessee that 'any other person' must be an employee or an agent but should not be an assessee. The context in which Section 37(3) appears and the general scheme of the Act points to the fact that this provision has been enacted to prevent excessive travelling expenses being debited to the business carried on by the assessee, thereby reducing the legitimate tax payable by the assessee. In our opinion, the words 'any other person' have been used in contradistinction to the word 'employee' preceding them and so anybody who is not an employee will come under 'any other person'. Considering the context of the section and the general scheme of the Act, we hold that the assessee does come within the purview of the phrase 'any other person' appearing in Section 37(3). We also do not find any force in the argument raised for the assessee based upon Sub-clause (iii) of Rule 6D(2)(b). We, therefore, reject the first contention of the assessee.
8. However, coming to the alternative contention of the assessee, we find force in the same. We have gone through the aforesaid order of the Tribunal in the case of Hindustan Export & Import (supra). We find that the Tribunal in that order has accepted a similar claim of the assessee relying on two other Tribunal decisions. Respectfully following the aforesaid decisions, we hold that all the tours made by a person during the previous year should be taken together in order to determine whether the amount admissible under Rule 6D has been exceeded or not.
We, therefore, accept this alternative contention of the assessee. We direct the ITO to verify whether the excess calculated in the aforesaid manner really comes to Rs. 503 as claimed by the assessee before us, and if it really comes to Rs. 503, then to restrict the disallowance to Rs. 503 only and modify the assessment accordingly. The TTO should give an opportunity of being heard to the assessee before finalising this matter.