Per Shri K.T. Thakore, Accountant Member - This set of two appeals filed by the revenue and the assessee respectively relate to the assessment year 1978-79. As these appeals relate to the same assessee and the same assessment year they are disposed of by this combined order for the sake of convenience. The assessee is a limited company which carries on business of manufacture of diesel engines, compressors, pumps, steel foundry and castings and other machinery, etc.
2. We first take up for consideration the appeal by the revenue. The first ground relates to the decision of the Commissioner (Appeals) to hold that the expenditure incurred on distribution of dry fruits was for the purposes of business and as such an allowable expenditure. The assessee incurred an expenditure of Rs. 14,855 in connection with the distribution of dry fruits on Diwali and New Year’s Day. The ITO disallowed the said expenditure as treating the same as in the nature of entertainment expenditure.
3. In appeal the Commissioner (Appeals) following his decision for the assessment year 1977-78 deleted the said addition.
4. Being aggrieved the revenue has come up in appeal before us. Our attention was drawn to the decision of the Tribunal in the assessee’s own case for the assessment year 1977-78 in IT Appeal Nos. 1824 and 1916 (Ahd.) of 1972-73 in which similar claim was allowed by the Tribunal. We do not see any reason to depart from the view taken by the Tribunal in the said case and, therefore, we decline to interfere with the decision of the Commissioner (Appeals). We may add that the expenditure incurred for distribution of dry fruits on Diwali days to the customers and constituents is essentially an expenditure incurred for the purpose of business and has no element of entertainment as held by the ITO.
5. The next contention relates to allowance of expenditure of Rs. 2,57,705 as sales promotion expenditure. The revenue has challenged the decision of the Commissioner (Appeals) on the ground that the said expenditure was not of revenue nature in any case the said expenditure was hit by rule 611 of the Income-tax Rules, 1962 (‘the Rules’). The assessee claimed a deduction of Rs. 3,61,624 under the head ‘Sales promotion expenses’. On examination of details, the ITO found that the said expenditure was incurred for presentation of articles such as suitings, sarees, pens, ties, etc. The value of some of the articles exceeded Rs. 50 per article. The ITO, therefore, obtained the details regarding the expenditure incurred towards the aforesaid items which exceeded Rs. 50 each and applying rule 6B disallowed a sum of Rs. 2,57,705.
6. The matter was carried in appeal before the Commissioner (Appeals) who following his decision in the earlier years as also the decision of the Tribunal (to which we shall presently refer) deleted the said addition.
7. Being aggrieved the revenue is in appeal before us. Our attention was drawn to the decision of the Tribunal in the assessee’s own case for the assessment year 1970-71 in IT Appeal No. 439 (Ahd.) of 1975-76, read with C.O. No. 87 (Ahd.) of 1975-76 decided on 24-4-1976. In that decision, the Tribunal had considered an identical issue. We have perused the said decision and are in respectful agreement with the same. Therefore, respectfully following the said decision and for the reasons recorded therein we decline to interfere with the decision of the Commissioner (Appeals).
8. The next ground relates to the disallowance of a sum of Rs. 1,88,941 in regard to presentation of articles. The said disallowance was made by the ITO on the footing that rule 611 applied to the said expenditure and, therefore, the total expenditure on the said item which exceeded Rs. 50 each totalling to Rs. 1,88,941 out of Rs. 2,39,111 was hit by the said rule. The Commissioner (Appeals) in appeal deleted the said disallowance for the same reasons as set out in the earlier paragraphs. We also do not find any reason to interfere with the decision of the Commissioner (Appeals) for the reasons set out earlier relating to the assessee’s claim in regard to the sale promotion expenses. We may add that in regard to both the items of expenditure the decision of the Tribunal has been accepted by the department in earlier years and for subsequent year, namely, the assessment year 1979-80 the IAC acting under section 144B of the Income-tax Act, 1961 (‘the Act’), had also deleted the disallowance proposed by the ITO.
9. The next contention relates to deletion of an addition of Rs. 14,938 being popja expenses. The ITO disallowed the said amount on the ground that the said expenditure had nothing to do with the promotion of the sale or production. The Commissioner (Appeals) disagreed with the view, in appeal and held that the said expenditure was allowable in light of the decision of the Tribunal, Bombay Bench.
10. Before us it was contended on behalf of the revenue that in view of the decision of the Bombay High Court in the case of Kolhapur Sugar Mills Ltd. v. CIT [1979] 119 ITR 387 the claim was not allowable. The learned departmental representative relied on the said decision of the Bombay High Court to support the disallowance as made by the ITO. Shri Shah on the other hand pointed out that the said expenditure was in nature of staff welfare expenditure and was clearly allowable. He also relied on the fact that in the subsequent year the IAC acting under section 144B had directed deletion of disallowance proposed in respect of the said expenditure by the ITO in his draft order.
11. We have perused the decision relied upon on behalf of the revenue. In our opinion, the said decision is distinguishable because the assessee was already allowed substantial expenditure as staff welfare expenditure and the labourers having been paid well with regard to wages and bonus there was no need for incurring the said expenditure to keep the labourers in good humour. In our opinion. the expenditure incurred towards popja is essentially as staff welfare expenditure and in absence of any other material like the one placed in Kolhapur Sugar Mills Ltd.’s case (supra), we are inclined to uphold the decision of the Commissioner (Appeals) particularly when the revenue has accepted the same position in the subsequent year.
12. The next ground relates to the decision of the Commissioner (Appeals) to hold that a sum of Rs. 5,456 being house maintenance expenditure could not be treated as perquisites for the purpose of determining disallowance under section 40(c)/40A of the Act. While determining the disallowance under section 40A(5) in respect of managing director Shri Yogesh Maneklal, the ITO, inter alia, added the aforesaid amount relating to maintenance expenditure of Woodland Flat provided, for residence by the assessee to the said managing director.
13. The matter was carried in appeal before the Commissioner (Appeals) who following the decision of their Lordships of the Kerala High Court in the case of Commr. Of Income-Tax v. Travancore Tea Estates Co. Ltd. [1980] 122 ITR 557 deleted the said amount in computing the said disallowance.
14. Being aggrieved the revenue is in appeal before us. The learned departmental representative submitted that in view of the decision of the Full Bench of the Kerala High Court in the case of Commissioner Of Income-Tax, Kerala v. Commonwealth Trust Ltd. [1982] 135 ITR 19 the said deletion by the Commissioner (Appeals) was not justified. The learned representative of the assessee on the other hand relied on the decision of the Commissioner (Appeals).
15. We have perused both the decisions relied upon by the revenue as also by the Commissioner (Appeals). In our opinion, the decision relied upon by the Commissioner (Appeals) is directly on the point and it is held in the said decision that expenditure on maintenance or repairs does not amount to perquisite unless special repair was undertaken to suit the convenience of the employee. It may be pointed out that though the decision of the Full Bench was rendered at a later date it has not overruled the decision in Travancore Tea Estates Co. Ltd.’s case (supra). Therefore, in absence of any material to show that the expenditure incurred towards maintenance was of a special type in order to suit the convenience of the employee we see no reason to interfere with the decision of the Commissioner (Appeals).
16. The last contention raised in the appeal filed by the revenue relates to the deletion of a sum of Rs. 35,898 being expenditure incurred on amalgamation. The ITO found that T. Maneklal Mfg. Co. Ltd. amalgamated with the assessee-company pursuant to the order of the Hon’ble High Court of Gujarat at Ahmedabad and the Hon’ble Supreme Court at Bombay. In course of amalgamation proceedings the assessee-company had incurred an expenditure to the extent of Rs. 35,899. The ITO was of the view that the said expenditure was. of capital in nature and rejected the contention that placed by the assessee that the main purpose of amalgamation was to carry on the business more efficiently and economically under a single control. It was also pointed out that the said expenditure was incurred in order to effect internal economies to ensure better utilisation of the resources. The ITO held that the expenditure incurred to acquire control and management of the affairs of another company resulted in acquisition of capital asset and as such the expenditure relating thereof must be held as capital expenditure.
17. The matter was carried in appeal before the Commissioner (Appeals) who following the decisions in Addl. CIT v. W.A. Beardsell & Co. (P.) Ltd. [1981] 130 ITR 159 (Mad.) and CIT v. Bush Boake Alien (India ) Ltd. [1982] 135 ITR 306 (Mad.) upheld the claim of the assessee and deleted the said disallowance.
18. Before us the learned departmental representative submitted that in view of the decision in Raza Buland Sugar Co. Ltd. v. CIT [1980] 122 ITR 817 (All.) the said expenditure was clearly of capital in nature. Shri Shah on the other hand relied on the decision referred to by the Commissioner (Appeals) as stated above.
19. We have considered the rival submissions and have referred to various decisions cited by both the sides. In our opinion, the decision of their Lordships of the Madras High Court in the case of Bush Boake Allen (India) Ltd. (supra ) clearly applies to the facts of the case and we are inclined to follow the same. It may be stated that in the said decision their Lordships have considered the earlier decisions of the Madras High Court on the same point and have applied the principle laid down by the Supreme Court in India Cements Ltd. v. Commissioner Of Income Tax, Madras. [1966] 60 ITR 52 . In Raza Buland Sugar Co. Ltd.’s case (supra) the decision of the Supreme Court referred to above does not appear to have been considered. Therefore, we hold that the Commissioner (Appeals) was justified in holding that the amalgamation expenses were of revenue in nature and thereby deleting the said disallowance.
20. Now we turn to the appeal filed by the assessee. The grievance Of the assessee that the Commissioner (Appeals) was not justified, on facts of the case, in holding that the assessee was not entitled to any relief under section 80J of the Act, in respect of profits of PVC division originally owned by T. Maneklal Mfg. Co. Ltd. (T. Maneklal), it amalgamated with the assessee - company T. Maneklal, the amalgamating company had set up a new industrial undertaking known as PVC division at Ahmedabad and had started commercial production in the month of January 1974. T. Maneklal amalgamated with the assessee-company on 1-7-1970. It had made a claim for relief under section 80J for the assessment year 1978-79 before the ITO. The initial assessment year for claim under section 80J was 1975-76. Thus, T. Maneklal was granted relief under section 80J for the assessment year 1978-79 for the third succeeding assessment year on the basis of the claim made by it for the assessment year 1978-79. After the amalgamation the assessee, the amalgamated company also made a claim for relief under section 80J in respect of the said undertaking. The ITO refused to entertain the claim for the assessment year 1978-79 on the ground that the said claim was already considered in the hands of T. Maneklal in its assessment.
21. Being aggrieved the assessee carried the matter in appeal before the Commissioner (Appeals) and claimed that relief was due to it in view of the Calcutta High Court decision in the case of Century Ehka Ltd. v. ITO [1977] 107 ITR 123 as also the CBDT Circular F. No. 15/5/63-IT(A-1), dated 13-12-1963. The Commissioner (Appeals) observed that the assessee’s claim founded on decision in Century Enka Ltd.’s case (supra) was clearly misplaced. The said decision had no application. That apart T. Maneklal had already availed of relief for the assessment year 1978-79. The circular of the CWT [reproduced at para 15.1 of the Commissioner (Appeals)’s order] had also no application. Thus, the Commissioner (Appeals) was of the view that T. Maneklal having obtained relief for the assessment year 1978-79 was not entitled to further relief in the hands of the assessee after amalgamation. In this view of the matter, the Commissioner (Appeals) upheld the decision of the ITO.
22. Being aggrieved the assessee has come up in appeal before us. Shri Shah submitted that T. Maneklal was admittedly allowed relief under section 80J for the assessment year 1978-79. But he pointed out that the said company followed the previous year beginning from 1-6-1976 and ending on 31-5-1977. The assessee-company on the other hand followed financial year as its previous year. The relevant previous year being 1-4-1977 to 31-3-1978. . Now after amalgamation the previous year to be followed for the assessment year 1979-80 would be the financial year. Now all that the assessee’s claim was that the relief that was due under section 80J for the period 1-6-1977, i.e., after amalgamation up to the end of the previous year, viz., 31-3-1978 should be allowed in the hands of the assessee. Section 80J provides for relief to an industrial undertaking for the initial year and for four successive assessment years. Thus, the said section postulated continuation of the relief due to an industrial under taking for a composite period of 5 years. Now if the department’s stand were to be accepted then for the broken period 1-6-1977 to 31-3-1978 the relief will be lost and the provisions of section 80J did not contemplate losing of benefit as a result of amalgamation. On the contrary provisions relating to amalgamation have to be construed more favourably and that there are various reliefs provided to amalgamating and amalgamated companies. The mere fact that the same assessment years are involved in the hands of the two companies, viz., T. Maneklal and the assessee should not be the basis for determining the relief due to the assessee. In effect the - assessee was not claiming double relief at all but what was claimed was the continuity of relief or to put it differently the loss of relief due to the industrial undertaking as a result of amalgamation. The learned departmental representative on the other hand relying on the orders of the authorities below contended that the relief under section 80J has to be calculated with reference to initial year and four successive years. On this basis relief due for the assessment year 1978-79 was already granted in the hands of T. Maneklal & Co. The next relief due would be of course in the hands of the assessee-company but the relevant assessment year would be 1979-80 and no further relief was due for the assessment year 1978-79 in the hands of the assessee. Otherwise for assessment year 1978-79 relief would be allowed to both the companies which was not contemplated under section 80J.
23. We have considered the rival submissions. It may be stated at the outset that the unit in question is an industrial undertaking which is exigible to relief under section 80J. In fact such relief was granted in the hands of T. Maneklal which owned the unit for the assessment year 1975-76 on the basis of the initial year and such relief was allowed in the hands of the said company for the assessment year 1978-79. The difficulty has arisen due to different financial years which are followed by the respective companies. T. Maneklal as pointed out earlier had followed the previous year beginning from 1-6-1976 and ending on 31-5-1977 and at the end of the accounting year it amalgamated with the assessee-company which followed financial year as previous year. The expression ‘amalgamation’ is defined in section 2(1A) of the Act. The relevant provisions are set out hereunder :
"(1A ) ‘amalgamation’, in relation to companies, means the merger of one or more companies with another company or the merger of two or more companies to form one company (the company or companies which so merge being referred to as the amalgamating company or companies and the company with which they merge or which is formed as a result of the merger, as the amalgamated company) in such a manner that—
(i)all the property of the amalgamating company or companies immediately before the amalgamation becomes the property of the amalgamated company by virtue of the amalgamation ;"
As a result of amalgamation there is merger of one or more companies with another company under which all properties of amalgamating company immediately before the amalgamation becomes property of the amalgamated company. To put it differently the amalgamated company steps in the shoes of the amalgamating company which in effect loses its identity as a result of the merger. Thus, as a result of the amalgamation the unit owned by T. Maneklal became property of the assessee-company. The assessee-company in its own assessment is entitled to relief under section 80J in respect of the said unit, as successor company, in the light of the instructions of the CBDT referred to earlier. The assessee-company in our opinion could claim relief under section 80J on the basis of the previous year followed by it in respect of the profits of the undertaking which is now owned by it and that is only after the amalgamation, i.e., from 1-6-1977 to 31-3-1978. It may not be out of place to mention that section 33(3)(b) of the Act which deals with the question of allowance of development rebate on amalgamation provides for continuation of relief in the hands of the amalgamated company. Of course, the said section creates a fiction under which the amalgamated company is treated as an assessee and, therefore, the benefit of unabsorbed development rebate also accrues to the amalgamated company. The controversy in this regard had come up before the Tribunal, Bombay Bench in case of Tyresole Concessionaries ( P.) Ltd. v. ITO [1982] 1 SOT 119 to which one of us (the Accountant Member) was a party. In that case also both the companies followed different previous years and the question arose for consideration was whether the amalgamated company on amalgamation was entitled to benefit of unabsorbed development rebate which was carried forward in the hands of the amalgamated company. The reasons set out in the said decision would in our opinion apply with equal force to the controversy before us. There is yet one more aspect of the matter. The amalgamation of companies is intended to grant certain benefits to both the companies. For example, section 47(vi) of the Act excludes any transfer in a scheme of amalgamation of a capital asset by the amalgamating company to the amalgamated company if the amalgamated company is an Indian company. Thus, the levy of capital gains, which would have otherwise been chargeable has been specifically excluded under the scheme of amalgamation. The provisions therefore have to be so construed as to make available the benefits if they are so available rather than denying the same. The construction sought to be placed on behalf of the revenue would result in loss of benefit for a portion of the year to the assessee-company and the profits relating to the said period, viz., 1-6-1977 to 31-3-1978 would be excluded from relief under section 80J altogether. Since the scheme of section 8W provides for relief for a compact period of five years and we see no provision which disentitles the relief to the assessee. On basis of favourable approach to the problem we hold that the assessee’s claim for relief under section 80J for the assessment year 1978-79 must be upheld. It may be further mentioned that their Lordships of the Gujarat High Court in the case of CIT v. Satellite Engg. Ltd. [1978] 113 ITR 208 have laid down that the provisions relating to section 80J (old section 84) must be so construed as to advance the cause of relief due to the assessee rather than witholding the same. In light of the above discussion, therefore, we are inclined to uphold the claim of the assessee.
24. The last contention raised in the assessee’s appeal relates to chargeability of interest under sections 215 and 139(8) of the Act. The ITO levied interest under section 139(8) amounting to Rs. 1,21,618 and Rs. 4,69,390 under section 215. The assessee’s claim before the Commissioner (Appeals) that the said interest was wrongly levied but the assessee’s contention stood rejected by the Commissioner (Appeals) in regard to levy of interest under section 215. As regards interest under section 139(8) the Commissioner (Appeals) directed that interest if levied for less than one month the same should be cancelled. Otherwise it was open to the assessee to move for waiver of interest under the Rules.
25. Being aggrieved the assessee is in appeal before us. Shri Shah’s submission at the outset was that levy of interest was illegal. Inasmuch as in the draft order which the assessee has sent to the IAC there was no mention thereof. Thus, the direction to levy interest under section 139(8)/215 was contained in the final order which would amount to amendment of the draft order approved by the IAC which was not permissible under section 144B proceedings. In other words, according to Shri Shah, it was not open to the ITO to make any amendment in the draft order once it was approved by the IAC. In this connection, Shri Shah strongly relied on the decision of the Chandigarh Bench of Tribunal in IT Appeal No. 59 of 1978-79 dated 16-6-1980. Shri Shah also referred to another decision in Gwalior Cloth Agencies v. ITO (1982] 13 M 340 (Delhi). He also relied on the decision of Ahmedabad Bench in IT Appeal No. 496 (Ahd.) of 1981 dated 16-11-1981. On merits Shri Shah submitted that levy of interest under section 215 was not justified as the assessee had paid advance tax in excess of 75 per cent of the tax payable. So far as levy of interest under section 139(8) was concerned, the ITO had granted time up to 31-10-1978 for filing the return and thereafter the assessee had moved an application for extension of time up to 30-11-1978 to which there was no reply and the assessee had filed the return on 30-11-1978. The learned departmental representative on the other hand supported the orders of the authorities below and submitted that the ITO was justified in levying interest when he was satisfied that such levy was called for.
26. We have considered the rival submissions. Two issues fulfil for our consideration. Firstly, levy of interest under section 215. It is clear that on basis of the tax payable on basis of the relief granted by the Commissioner (Appeals) the advance tax paid works out to Rs. 33.94 lakhs (as against 75 per cent of the tax payable), i.e., Rs. 41.03 lakhs or Rs. 30.77 lakhs. As a result of the relief which we have directed in the foregoing paragraph, the advance tax paid by the assessee would be certainly within the statutory margin of 75 per cent laid down in the Act. Therefore, on the facts of the case, levy of interest under section 215 is not called for at all.
27. So far as the other issue relating to interest under section 139(8) is concerned, the question of levy would require reconsideration in the light of the tax liability as may be determined after giving effect to this order.’ the matter is, accordingly, remitted to the ITO for reconsideration of the question relating to levy of interest under section 139(8). In the view which we have taken it is not considered necessary to go into other aspects of the matter. We, therefore, do not consider it necessary to give our finding on other issues raised by Shri Shah which we have set out earlier.
28. The appeal filed by the revenue is dimissed and the appeal filed by the assessee is treated as partly allowed.