Law:

Section:

Section 4 of the Income-tax Act, 1961 - Capital or revenue receipt - Assessment year 1974-75 - Whether amount received on transfer of import entitlements is a capital receipt - Held, no Section 37(2A) of the Income-tax Act, 1961 - Entertainment expenditure - Assessment year 1974-75 - Whether reimbursement of out of pocket expenses of directors in entertaining business associates and guests is an entertainment expenditure - Held, yes Section 40A(5) of the Income-tax Act, 1961 - Business disallowance - In case of companies - Assessment year 1974-75 - Whether payment of bonus constitutes salary for purposes of section 40A(5) - Held, yes - Whether amount paid to employee before retirement is allowable under section 40A(5)(c) - Held, yes FACTS The assessee claimed before the ITO that receipts of Rs. 1,40,864 arising out of the transfer of import entitlements were capital receipts. The ITO rejected the claim of the assessee. The assessee paid Rs. 21,000 to its directors as out of pocket allowance and claimed deductions thereof. The ITO negatived this claim of the assessee. The assessee paid remuneration of Rs. 1,01,650 to its managing director. This amount included bonus of Rs. 7,400. The assessee claimed deduction of the entire amount of Rs. 1,01,650. But the ITO restricted the allowance out of this claim to the extent of Rs. 72,000 in view of the provisions of section 40A(5). In doing so, the ITO treated the payment of bonus of Rs. 7,400 as salary. The assessee also paid remuneration of Rs. 91,498 to one of its employees who retired during the previous year relevant to the year under reference. This amount represented salary of Rs. 30,000, bonus of Rs. 4,998, leave salary of Rs. 10,000 and cash gratuity of Rs. 46,500. The ITO disallowed Rs. 31,498 out of the aforesaid amount of Rs. 91,498 under section 40A(5) as this amount represented excess over Rs. 50,000. On appeal, the AAC as well as the Tribunal upheld the order of the ITO. On reference: HELD In view of the decision of this Court in Jeewanlal (1929) Ltd. v. CIT [1983] 139 ITR 865 the receipt arising out of the transfer of import entitlements was not capital receipt but a revenue receipt assessable to tax. The…

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