Law:

Section:

I. Section 37(3) of the Income-tax Act, 1961, read with rule 6D of the Income-Tax Rules, 1962 - Guest house expenses - Assessment year 1989-90 - Whether disallowance under rule 6D should be worked out with reference to each trip made by employee and not by consolidating all trips undertaken by employee during year - Held, yes [In favour of revenue] II. Section 115J of the Income-tax Act, 1961 - Zero-tax companies - Assessment year 1989-90 - Whether amount withdrawn from revaluation reserve account can be allowed to be reduced in consonance with provision of section 115J only if such reserve was created by crediting amount to profit and loss account - Held, yes [In favour of revenue] FACTS I The assessee, in course of its business, incurred expenses on travel undertaken by its employees. In consonance with provisions of section 37(3), read with rule 6D, the assessee computed disallowance by aggregating trips made by an employee during the year. Thus, if there was any surplus amount, according to the limits prescribed under rule 6D, the same got adjusted against the deficit if any, arising viz-a-viz a subsequent visit of the same employee in the same year. The Assessing Officer, however, rejected this method of computation of disallowance by holding that the disallowance under rule 6D was to be calculated with reference to each trip made by the employee and not by aggregating the trips made by the employee during the course of the relevant assessment year. On appeal, the Commissioner (Appeals) sustained the decision of the Assessing Officer. On second appeal, the Tribunal reversed the view taken by the authorities below. On revenue's appeal: HELD A plain reading of rule 6D(2) would show that the expenditure incurred by an assessee, which is given by way of an allowance to an employee or any other person in respect of travel within India outside the headquarters of such employee or any other person, for the purposes of business or profession of the assessee, are broadly classified under two heads. Under clause (a) of sub-rule (2), actual expenditure incurred on the mode of travel,i.e., whether it be rail, road, waterway or air is a permissible allowance. Clause (b…

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