1. The question refereed for consideration by this court is as under :
'1. Whether, on the fact and in the circumstance of the case, the Appellate Tribunal was justified in taking recourse to section 40(c) of the Act when the Department had not disallowed the claim for motorcar expenses under that section
2. Whether, on the fact and in the circumstances of the case, the Appellate Tribunal was justified in disallowing the claim of the applicant for motorcar expenses when the applicant is a limited company,irrespective of the fact as to whether some of the cars were including directors (sic) ?'
2. In order to answer these questions, the factual background may be stated as under :
3. The reference concerns the assessment year 1972-73. During the said year, the assessee-company incurred motorcar expenses aggregating to Rs. 32,586. The directors of the company did not own personal cars and hence the Income-tax Officer disallowed a claim of Rs. 4,000 by way of expenditure of non-business nature our of the total claim of Rs. 32,586. In appeal, the Appellate Assistant Commissioner. restricted the disallowance to Rs. 3,000. The assessee carried the matter in appeal to the Tribunal. Relying on its earlier decision in I.T.A. Nos.1613 to 1616 (Ahd) of 1971-72, decided on September 17, 1973, the Tribunal upheld the disallowance as made by the Appellate Assistant Commissioner. The said decision of the Tribunal was, however, the subject-matter of Reference Applications Nos. 290 to 293 (Ahd) of 1973-74. Feeling aggrieved by the said order of the Tribunal, the assessee sought a reference to this court.
4. The earlier decision of the Tribunal in I.T.A. Nos. 1613 to 1616 (Ahd) of 1971-72 decided on September 17, 1973, was the subject-matter of reference to this court which came to be disposed of by a Division Bench consisting of B. J. Devan C.J. and B. K. Mehta J. on August 29, 1977, vide Mehta Parikh & Co. Ltd. v. CIT : 124ITR448(Guj) . In that case also, the same question as arises in this reference came to be decided by this court after reference to section 40(c) of the Income-tax Act, 1961. This court came to the conclusion that the Tribunal had failed to consider the question from the standpoint of section 40(c) more particularly from the point of view whether the expenditure incurred by the assessee was unreasonable or excessive having regard to the business needs of the company and the benefits derived by or accruing to the company from this expenditure. Declining to answer the question raised in the reference, this court left it to the Tribunal to dispose of the appeal before it under section 260(1) of the Income-tax Act in the light of the observations made in the judgment reserving unto the parties the right to lead evidence. Since the very same question arises in this reference, the question is clearly covered by the afore said decision of this court.
5. In the present case also, the requirements of section 40(c)(ii) of the Act do not appear to be satisfied in the sense that it is not shown that the expenditure or allowance is excessive or unreasonable having regard to the legitimate needs of the business carried on by the company and the benefit derived by or accruing to the company from this expenditure. We must, therefore, without answering the questions raised in the reference, remand the matter to the Tribunal to consider and decide the questions in the light of section 40(c)(ii) of the Act and in the light of the observations made by this court in the judgment referred to with a view to finding out whether the expenditure on motorcars sought by way of deduction/allowance was not unreasonable on excessive having regard to the business needs of the company and the benefit derived/accruing therefrom to the company. It will be open to both side to lead evidence after the appeal goes back to the Tribunal. The Tribunal will permit both sides to lead additional evidence on this limited question. The reference is disposed of accordingly with no order as to costs.