U.T. Shah, J.

1. These are two cross reference under section 256(1) of the Income Tax Act, 1961 (for short, "the Act"). The questions referred to us at the instance of the assessee are as under :

"1. Whether, on the facts and in the circumstances of the case, the Tribunal erred in holding that the expenditure admissible under section 37(3) of the Income Tax Act read with rule 6D of the Income Tax Rules, 1962, had to be calculated for each employee with reference to the period of each trip made by him outside the headquarters and in thereby upholding the disallowance of Rs. 530 and Rs. 617, respectively, for the assessment years 1970-71 and 1971-72

2. Whether, on the facts and in the circumstances of the case, the Tribunal erred in holding that it did not have jurisdiction to entertain the assessees additional ground for deduction of its surtax liability in arriving at its total income because such claim had not been made before either the Income Tax Officer or the Appellate Assistant Commissioner for the assessment years 1970-71, 1971-72 and 1972-73

3. Whether, on the facts and in the circumstances of the case, the Tribunal erred in holding that the assessee had acted belatedly in raising the additional ground regarding the deductibility of surtax liability for the assessment years 1970-71 1971-72 and 1972-73

4. Whether, on the facts and in the circumstances of the case, the Tribunal erred in holding that the leave travel expense of Rs. 8,514 incurred by the assessee in respect of Mr. Richardson and his family was not wholly and exclusively incurred for the purposes of the assesses business for the assessment year 1972-73

5. Whether, on the facts and in the circumstances of the case, the Tribunal erred in holding that rule 6D(2) of the Income Tax Rules was also applicable in respect of travel in India by foreigners whose headquarters was not in India for the assessment year 1972-73 "

2. The following question is also refereed to us at the instance of the Revenue :

"Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the perquisite allowed by the assessee-company to Mr. G. T. Richardson were not covered by section 40(a)(v) of the Income Tax Act, 1961, his salary being exempt from tax under section 10(6) of the Act for the assessment year 1971-72 "

3. It is an agreed position that the issue raised in the question referred to us at the instance of the Revenue is covered by the decision of this court in the case of CIT v. Borosil Glass Works Ltd. : [1986]161ITR286(Bom) , in favour of the assessee. In this view of the matter, were answer this question in the affirmative, i.e. in favour of the assessee and against the Revenue.

4. As regards question No. 1 referred to as at the instance of the assessee, we are of the opinion that, in view of the smallness of the amount involved, it is not necessary to answer the same.

5. As regards the issue raised in questions Nos. 2 and 3, it is an agreed position that the same is covered by the decision of this court in the case of Ahmedabad Electricity Co. Ltd. v. CIT : [1993]199ITR351(Bom) , in favour of the assessee. In this view of the matter, we answer both these questions in the affirmative, i.e., in favour of the assessee and against the Revenue.

6. As regards the issue raised in question No. 4, we reproduce below the relevant portion of the order of the Tribunal which contains the facts of the case, the stand taken by the assessee and the decision of the Income Tax Officer/appellate authorities thereon :

"For 1972-73 assessment year, the assessees next ground is that the Appellate Assistant Commissioner erred in upholding the disallowance of traveling expenses of Mr. G. T. Richardson and his family, a foreign technician, serving with the assessee, relating to their trip while proceeding on leave from Bombay to his home country, the United Kingdom, prior to the completion of the terms of service with the assessee. The assessee claimed that the above payment for travel expenditure was under clause 6(1) (c) of the assessees agreement dated January 28, 1971, with Mr. G. T. Richardson. On the assessees appeal against the Income Tax Officers disallowance of the above expenditure, the Appellate Assistant Commissioner noted that, as per clause 6(1) (c) of the agreement, Mr. Richardson would be entitled to four months leave with full salary on completion of two years service which would expire on July 31, 1971, and under clause 6(1) (d), Mr. Richardson would be entitled to traveling expenditure for himself and his family only after that date. However, Mr. Richardson went on leave on May 3, 1971, before the completion of two years of service. The Appellate Assistant Commissioner held that since the payment was thus made in contravention of the terms of the agreement, it would not be allowed as a business expenditure."

"Before us in appeal, learned counsel for the assessee stated that, under clause 6(1) (a) of the agreement, Mr. Richardson was entitled to four months leave with full salary after completing two years service and, under clause 6(1) (c), he was entitled to travel expenses for himself and his family from Bombay to U.K., if he was availing of his entitled leave in U.K. on the completion of two years service. Counsel submitted that since he had completed his job, he went on leave earlier for two months and 27 days and the travel expenses in this connection were voluntarily incurred by the assessee for commercial expediency. Counsel argued that the expenditure incurred in such circumstances was admissible. The learned Departmental representative, in reply, supported the Appellate Assistant Commissioners order."

"We have considered the rival submissions. The terms of the agreements are specific that Mr. Richardson is entitled to travel expenses for himself and is family to proceed to U.K. only in respect of the leave to which he becomes entitled after completing two years service, i.e. on July 31, 1971. The leave granted to him prior to his date and the travel expenses incurred in connection therewith are outside the scope of the agreement and we are unable to hold that such expenditure was wholly and exclusively incurred for the purposes of the business. There is also no material before us to support any overriding consideration for commercial expediency. In the circumstances, we are unable to interfere"

7. Learned counsel for the assessee submitted that, in view of the facts obtaining in the instant case, the Tribunal ought to have accepted the assessees claim for deduction of Rs. 8,514. According to him, just because Shri Richardson had gone a little earlier before completing his two years term, it should not come in the way of allowing the assessees claim for deduction of Rs. 8,514. In this connection, he stated that since Shri Richardson had completed his work assigned to him, he had gone earlier before the two years contemplated under the agreement. In this view of the matter, he submitted that the assessee should be granted deduction of Rs. 8,514. Learned counsel for the Revenue, on the other hand, supported the action of the Income Tax authorities as well as the Tribunal.

8. On a due consideration of the submissions made by the parties and the facts obtaining in the instant case, we are of the view that the assessees claim for deduction of Rs. 8,514 should have been accepted without any demur. There is no violation of either any statutory provisions or of any contractual obligation as Shri Richardson had completed his assignment well within the two years stipulated in the agreement. In this view of the matter, we answer question No. 4 in the affirmative, i.e., in favour of the assessee and against the Revenue.

9. The issue raised in question No. 5 referred to us at the instance of the assessee is somewhat an important issue. The facts are the assessee is a company where some of the foreigners came to India in connection with the assessees business. The assessment year us 1972-73 and the relevant previous year is the calendar year ended on December 31, 1971.

10. The assessee had incurred expenditure on five persons who visited India and stayed in hotels. The expenditure incurred by the assessee and that disallowed by the Income Tax Officer under section 37(1) as well as under section 37(3) read with rule 6D of the Income Tax Rules, 1962, is tabulated as under :



11. It may be mentioned that, in respect of Shri Neck, the appellate authorities have confirmed the action of the Income Tax Officer in disallowing Rs. 15,382 out of Rs. 22,667 incurred by the assessee. The Tribunal, however, held that since the Income Tax Officer has made a certain disallowance under section 37(1) of the Act, he cannot make a disallowance under rule 6D on a similar expenditure. In this view of the matter, the Tribunal has sent the matter back to the Income Tax Officer to rework the disallowance to be made under 6D. As regards Shri Lilley, the appellate authorities have deleted the disallowance made by the Income Tax Officer under section 37(1) of the Act. However, they have upheld the disallowance made by the Income Tax Officer under rule 6D. It is pertinent to note that, in its return of Income Tax Officer under rule 6D. It is pertinent to note that, in its return of income the assessee has also worked out disallowance made under section 37(1) of the Act. As regards Shri Dufour, the Appellate Assistant Commissioner had confirmed the disallowance made under section 37(1) of the Act. In this view of the matter, he deleted the disallowance of Rs. 1,676 made by the Income Tax Officer under rule 6D. Here also, it is pertinent to note that, in its return of income, the assessee had shown disallowance of Rs. 1,676 under rule 6D. As regards Shri Hill, no details are available in any of the orders of the Income Tax authorities or the Tribunal.

12. Before the Appellate Assistant Commissioner, even though the assessee had offered for disallowance of certain expenditure under rule 6D(2) in respect of S/Shri Lilley and Dufour, it was submitted on behalf of the assessee that, since all the aforesaid gentlemen had come to India and stayed only at one place, i.e. Bombay, and had not travelled within India, the provisions of rule 6D(2) would not be applicable and, therefore, the Income Tax Officer was not justified in disallowing Rs. 11,323. The position of disallowance is now limited to three persons, viz., S/Shri Neck, Lilley and Hill. Since no details are available in respect of Shri Hill, his case has to be ignored.

13. Inviting our attention to section 37(3) of the Act and rule 6D(2) of the Rules, learned counsel for the assessee vehemently argued that, since the foreigners had not travelled within India but had only stayed in hotels in Bombay, the provisions of rule 6D(2) would not be attracted. In this connection, he emphasised that, in order to invoke the provisions of rule 6D(2), the headquarters of an employee or other persons should be within India and not outside India. According to him, since the headquarters of these gentlemen were outside India, there was no question of applying the provisions of rule 6D(2). He further submitted that, in order to attract the provisions of rule 6D(2), expenditure mentioned in both the clauses (a) and (b) should have been incurred. However, since, in the instant case, no expenditure in respect of travel by rail, road, waterway or air, has been incurred within India, the provisions of the said rule would not be applicable. In support of his submissions, he referred to the decisions in the cases of CIT v. Official Liquidator, Palai Central Bank Ltd. : [1984]150ITR539(SC) ; Evans Fraser and Co. Ltd. v. CIT : [1982]137ITR493(Bom) and K. P. Varghese v. ITO : [1981]131ITR597(SC) . According to him, even though in the reported cases, the courts were concerned with the provisions of different sections of the Act or of the Companies (Profits) Surtax Act, 1964, the ratio laid down in those decisions would be applicable in the instant case. He once again stressed the point that, in order to attract the provisions of rule 6D(2), the assessee has to incur both types of expenditure mentioned in clauses (a) and (b) and not only the expenditure mentioned in one of the clauses for, otherwise, aggregation of expenditure would not be possible. He further submitted that, normally, the expenditure incurred by the assessee on travel and hotels would have been allowable under section 37(1) of the Act itself. However, since sub-section (3) of section 37 of the act has carved out certain expenditure which can be disallowed in excess of certain limits prescribed under rule 6D(2), the provisions of sub-section (3) of section 37 read with rule 6D have to be construed very strictly. In this connection, he referred to the decision in the case of Philip John Plasket Thomas v. CIT : [1963]49ITR97(SC) . He also referred to the dictionary meaning of the words "within" and "travel within India. In this view of the matter, he submitted that the Tribunal was not justified in confirming the disallowance by holding that the provisions of rule 6D(2) would be attracted in respect of S/Shri Neck and Lilley.

14. Learned counsel for the Revenue, on the other hand, strongly relied on the orders of the Income Tax authorities as well as the Tribunal. According to him, in order to attract the provisions of rule 6D(2), it is not necessary that the headquarters of an employee or any other person should be in India. In this connection, he gave an illustration of an Indian company whose employees might have been posted in a foreign country. Such employees headquarters would be in the foreign country and whenever, they come to India, they would be leaving their headquarters. Similarly, he submitted that the gentlemen who came from abroad in the instant case had also left their headquarters. According to him, too much importance need not be given to the words "within" and "travel" as was stressed upon by learned counsel for the assessee. He submitted that, if we were to accept the submission made on behalf of the assessee, then the provisions of rule 6D(2) would not be applicable in most of the cases. He therefore, submitted that the interpretation of the provisions of rule 6D(2) in the manner it was argued on behalf of the assessee should not be approved.

15. We have considered the submissions made by the parties. It would be necessary to refer to the relevant provisions of the Act and the rule made thereunder. The same read as under :

"Section 37(1) Any expenditure... lad out or expended wholly and exclusively for the purposes of the business or profession shall be allowed in computing the income chargeable under the head Profits and gains of business or professions....

(3) Notwithstanding anything contained in sub-section (1), any expenditure incurred by an assessee after the 31st day of March, 1964, ... in connection with traveling by an employee or any other person (including hotel expenses or allowances paid in connection with such traveling) shall be allowed only to the extent, and subject to such conditions, if any, as may be prescribed.

Rule 6D.(2) The allowance in respect of expenditure incurred by an assessee in connection with traveling by an employee or any other person within India outside the headquarters of such employee or other person for the purposes of the business or profession of the assessee shall not exceed the aggregate of the amounts computed as hereunder :

(a) in respect of travel by rail, road, waterway or air, the expenditure actually incurred;

(b) in respect of any other expenditure (including hotel expenses, or allowances paid) in connection with such travel, an amount calculated at the following rates for the period spent outside such headquarters :



16. It may be mentioned that there are two provisos to rule 6D(2); one pertains to the expenditure incurred in hotels in Bombay, Calcutta or Delhi where the allowance per day is increased by 33 1/3 per cent. In the other proviso, the allowance is reduced to half if the employee or any other person stays in a guest-house maintained by the assessee. Actually, we are not concerned with the true interpretation of sub-section (3) of section 37 read with rule 6D(2).

17. The provisions of rule 6D(2) have to be read harmoniously with the provisions of sub-section (3) of section 37 of the Act. For, it is an accepted and well-recognised principle of construction of a statute that the provisions of a rule cannot override the provisions of a statute. Again, reference to the marginal note of the relevant rule made on behalf of the assessee was unwarranted and uncalled for as there is no difficulty in interpreting the provisions of sub-section (3) of section 37 and the rule made thereunder. The "hotel expenses" are specifically and separately mentioned within parenthesis both in sub-section (3) of section 37 and rule 6D(2). Therefore, the word "etc." mentioned in the marginal note along with "expenditure in connection with traveling" does not mean that the rule provides for expenditure on travel only.

18. On a plain reading of the aforesaid provisions, it is quite apparent that the expenditure incurred by the assessee in providing hotel accommodation to the foreigners would be hit by these provisions as, in our opinion, in order to attract these provisions, it is not necessary that the assessee should incur both types of expenditure mentioned in clauses (a) and (b) of rule 6D(2). Again, it is pertinent to note that under sub-section (3) of section 37 of the Act, the Income Tax Officer is required to make disallowance of certain expenditure incurred on traveling (including hotel expenses or allowances paid in connection with such traveling), subject to the limits and conditions which may be prescribed. Rule 6D(2) only prescribes to limits to which the expenditure will be allowed. Therefore, there is no substance in the submissions made on behalf of the assessee that just because the word "aggregate" is used in rule 6D(2), the expenditure of both the types mentioned in clauses (a) and (b) have to be incurred by the assessee. If the submissions made on behalf of the assessee were to be accepted, then an absurd situation would arise in the case of an employee or a person who goes to Delhi or Calcutta by air in the morning and returns the same evening. In such a case, the assessee would not get any deduction as there was no expenditure incurred in respect of hotel. Surely, this type of interpretation of the rule is not contemplated or warranted. Further, the expenditure mentioned within parenthesis in sub-section (3) of section 37 and the rule made thereunder are of two types, viz., hotel expenses and other allowances paid in connection with such travel. It is a common practice that, apart from providing hotel accommodation, sometimes an employee or other person is given daily allowances to meet the expenses at the place he visits outside his headquarters. He may not stay in a hotel and would prefer is mentioned within parenthesis, viz., "allowance paid in connection with such traveling." Hotel expenses are a different category of expenditure.

19. Again, we are are of the view that, in order to attract the provisions of sub-section (3) of section 37 of the Act, it is not necessary that the headquarters of the foreigners should also be within India. The illustration given by learned counsel for the Revenue of an Indian employee posted abroad in the establishment of an Indian enterprise in India, clearly illustrates the fallacy in the argument made on behalf of the assessee. Therefore, the headquarters of an employee or any other person can be anywhere in the world any necessarily within India. The moment such employee or any other person leaves his headquarters, the provisions of sub-section (3) of section 37 and rule 6D(2) would be attracted.

20. It may be noted that provisions of rule 6D cover both types of traveling without and within India. Sub-rule (1) of rule 6D contains provisions for traveling outside India while sub-rule (2) of the said rule contains provisions for traveling within India. However, in both the types, staying in a hotel becomes necessary on account of an employee or any other person leaving his headquarters. Therefore, stay in a hotel in connection with traveling within or without India, as the case may be, is necessary. In this view of the matter, both types of expenditure mentioned in clauses (a) and (b) of rule 6D(2) are covered even if one had to accept the untenable submissions made on behalf of the assessee.

21. We have carefully gone through the relevant portions of the reported decisions cited on behalf of the assessee and we are constrained to observe that none of them has any application or bearing in deciding the issue with which we are concerned in the present reference. One has to interpret the provisions of a statute in the context in which it is found and it would not be advisable to travel beyond what is stated in the statute with a view to finding out how the same should be interpreted. We are making these observations as, in the reported decisions, the courts were concerned with sections and provisions which are entirely different and their applicability in the context of a particular fact-situation. Much of public time could be saved if due and proper care is taken inciting reported decisions in support of the submissions made.

22. We have given our decision on the arguments advanced on behalf of the assessee. However, it is pertinent to note that the issue raised in the question is very much limited. In order to appreciate this aspect of the matter, were again refer to the question which reads as under :

"Whether, on the facts and in the circumstances of the case, the Tribunal erred in holding that rule 6D(2) of the Income Tax Rules was also applicable in respect of travel in India by foreigners whose headquarters were not in India, for the assessment year 1972-73 "

23. It would appear from the above that the question refers to travel in India by foreigners whose headquarters was not in India. In other words, even though the assessee had argued at length regarding the hotel expenses, there is no mention of the same in the question referred to us. In fact, the expenditure incurred on traveling by these foreigners has been allowed by the Income Tax Officer himself as would appear from the information tabulated above. However, in view of our aforesaid discussion, we would of the Income Tax Rules, 1962, would be applicable in respect of travel in India by foreigners whose headquarters was not in India, in the assessment year under reference.

24. No order as to costs.