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C.I.T. v. M/S Jagaran Prakshan (P) Ltd - INCOME TAX REFERENCE No. 93 of 1994 [2007] RD-AH 8246 (2 May 2007)


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Court No. 37

Income Tax Reference No. 93 of 1994

Commissioner of Income Tax


M/S Jagaran Prakashan (P) Ltd.

Hon. Sushil Harkauli,J

Hon. Ajai Kumar Singh,J

We have heard the learned counsel for both sides.

The following question has been referred in this case:-

1." Whether on the facts and circumstances of the case the Tribunal is correct in law in holding that the expenditure on hiring of cars does not come within the purview of section 37 (3-B) for the purposes of 10% disallowances?"

It appears that under Section 37 business expenditure which is sought to be deducted from the profits and gains of  business or profession has been confined under certain cases under sub-section (3A) and sub-section (3B) read with explanation (c ).

Apparently, these provisions which had been inserted and have now been deleted were for the purposes of stopping extravagant expenditure on advertisement, publicity, sales promotion, running and maintenance of   Aircraft, running and maintenance of Motor Cars and payments made to Hotels. Under sub-section (3A) of section 37, if expenditure on the above items exceeded Rupees one hundred thousand, the entire excess would not be permitted to be deducted and  only up to a maximum of 80% of the excess above Rupees one hundred thousand would  be  allowed to be deducted by the assessee from the profits and gains of business or profession.

Under explanation (c) expenditure of running and maintenance of Motor Cars would include expenditure incurred on hire charges for engaging cars plied for hire.

The assessee in the present case is a news-paper publisher. They sought deduction of expenditure on taxi hire charges for tax is engaged for delivering the news papers.

The Tribunal has held that this expenditure would not be hit by sub-section (3A) inasmuch as, it is an expenditure necessarily incidental to the business.

We are unable to agree. Expenditure unnecessary to the business obviously cannot be allowed to be deducted.  

However, if expenditure is necessary to business and has been incurred, its deduction is sought to be limited by the statute to the full extent upto rupees one hundred thousand and to 80% of the amount of exceeding Rupees one hundred thousand.

If the vehicles which were hired by the assessee has been goods vehicles and not passenger vehicles, the Tribunal's order could have been sustained. However, if the assessee has chosen to hire not goods vehicles but passenger vehicles for alleged transportation or  distribution of  goods or newspapers, the expenditure would fall within the bar of section 37 (3B).

We  are unable to accept a baseless suggestion from the side of the assessee made for the first time in this Reference that the vehicles were not passenger vehicles but goods vehicles, because the word "TAXI" denotes only passenger vehicles and not goods vehicles.

In the circumstances, we answer the question referred in favour of the department and against the assessee.

Reference disposed of.




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