Ajit K. Sengupta, J.
1. In this reference under Section 256(1) of the Income-tax Act, 1961, for the assessment year 1977-78, the following questions of law have been referred to this court :
'1. Whether, on the facts and in the circumstances of the case, the Tribunal is justified in law in holding that the legal charges of Rs. 12,000 paid by the assessee for obtaining the advice of the solicitors regarding dilution of its shareholding in pursuance of the provisions of the Foreign Exchange Regulation Act, 1973, is a revenue expenditure under Section 37 of the Income-tax Act, 1961 ?
2. Whether, on the facts and in the circumstances of the case, the Tribunal is right in holding that the remuneration of Rs. 24,000 paid to one of its directors, Sri V.S.K. Nadar, by the assessee, does not attract the provisions of Section 80VV read with Section 37(1) of the Income-taxAct, 1961 ?
3. Whether, on the facts and in the circumstances of the case, the Tribunal was correct in law in holding that the expenditure of Rs. 15,814 as presentation of wrist watches to employees was a revenue expenditure incurred wholly and exclusively for the purpose of the assessee's business ?'
2. The first question relates to the assessee's claim for Rs. 12,000 paid for obtaining the advice of the solicitors regarding dilution of its shareholding in conformity with the provisions of the Foreign Exchange Regulation Act, 1973. Both the Income-tax Officer and the Appellate Assistant Commissioner rejected the claim. The Tribunal, however, allowed the claim as a revenue expenditure deductible under Section 37.
3. Following the decision of this court in Income-tax Reference No. 54 of 1989 (Avery India Ltd. v. CIT : [1993]199ITR745(Cal) ), where the judgment was delivered on July 18, 1991, we hold that the expenditure, irrespective of the requirement under the provisions of the Foreign Exchange Regulation Act, 1973, is for augmentation of the capital base of the company and is, therefore, an expenditure of capital nature not allowable as deduction under Section 37. We, therefore, answer the first question in the negative and in favour of the Revenue.
4. The second dispute relates to the assessee's claim for Rs. 24,000 paid to Sri V.S.K. Nadar for professional services rendered by him. The Income-tax Officer disallowed the same on the ground that Sri Nadar was a tax consultant of the company and, therefore, the payment fell within the provisions of Section 80VV of the Income-tax Act. He, therefore, allowed a sum of Rs. 5,000 only under the relevant provisions of law.
5. The assessee went in appeal to the Commissioner of Income-tax (Appeals) and argued that, in terms of the resolution passed at the annual general meeting of the company, Sri Nadar was held entitled to receive remuneration of Rs. 2,000 per month and the provisions of Section 80VV were not attracted. The Commissioner of Income-tax (Appeals) was of the view that Sri Nadar was a retired income-tax official and his services could have been more pertinent to income-tax representation than other fields of law. He, therefore, restricted the disallowance to Rs. 4,000 only.
6. On a second appeal before the Tribunal, the entire claim was allowed in full by the Tribunal with the following observations :
'We have considered the rival submissions and the facts and circumstances of the case. We are of the view that the remuneration paid by the company to Sri Nadar does not fall within the purview of Section 80VV of the Act. The said section restricts deduction in respect of expenses incurred by an assessee in respect of any proceedings before any income-tax authority or the Appellate Tribunal or any court relating to the determination of any liability under the Income-tax Act by way of tax, penalty or interest. In other words, Section 80VV seeks to restrict the allowance in respect of expenditure incurred by an assessee in respect of a specific proceeding under the Income-tax Act. Therefore, the said section has no application in relation to remuneration or fees paid by an assessee to a tax consultant or other adviser for giving general advice in relation to taxation matters. We also see no justification in the order of the Commissioner of Income-tax (Appeals) restricting the allowance to Rs. 4,000 only. He has not given any valid reason in support of the view that Sri Nadar's services would have been pertinent to only income-tax representation. He has also not given any reason for holding that the value of Sri Nadar's services to the company even in relation to income-tax consultations would be only Rs. 4,000 per annum. We, therefore, see no merit in the disallowance and direct that the entire remuneration paid to Sri Nadar should be allowed as deduction in computing the taxable profits of the company. However, as a corollary to our direction, the separate deduction of Rs. 5,000 allowed by the Income-tax Officer under Section 80VV of the Act shall stand withdrawn.'
7. The Revenue, in this question, has not assailed the finding of fact by the Tribunal. The Tribunal has found as a fact that the remuneration in excess of Rs. 5,000 paid to Sri Nadar is not for any services rendered by him of the nature referred to in Section 80VV and the remuneration was paid by the assessee to Mr. Nadar in his capacity as a tax consultant or adviser for giving general advice in relation to taxation matters. This finding has gone unchallenged. Therefore, we cannot but answer the second question in the affirmative and in favour of the assessee.
8. The last dispute relates to the assessee's claim for Rs. 15,814 on account of the price of wrist watches presented to its employees. The Income-tax Officer and the Commissioner of Income-tax (Appeals) confirmed the disallowance on the ground that the expenditure for presentation of wrist watches by way of gift to selected employees of the assessee could not be regarded to have been incurred for the welfare of the employees and for the purpose of its own business.
9. On second appeal before the Tribunal, the claim was allowed with the following observations :
'We have considered the rival submissions and the facts on record. We find that the assessee's contention before the Commissioner of Income-tax (Appeals) was that it had presented the wrist watches to its 67 employees with a view to encouraging their timely attendance at work. Apart from this factor, it cannot be denied that the presentation of wrist watches would have helped the company in keeping good relations with its employees, keeping the employees satisfied and also earning their goodwill towards the company. A complete list of the employees to whom the wrist watches have been presented had also been filed by the assessee-company with the income-tax authorities. We, therefore, see no reason for the disallowance of the expenditure incurred by the assessee on the presentation of the wrist watches which must be regarded as an expenditure wholly and exclusively incurred by the company for the purpose of its business. The addition of Rs. 15,994 is, therefore, deleted.'
10. Here also, the finding of fact that the presentation of wrist watches was in the nature of an incentive to encourage the employees to attend work punctually and was incurred also to keep the employees happy and to earn their goodwill towards the company as the employer is not in dispute. In the face of the facts as found by the Tribunal, we cannot accept the contention of the Revenue that the expenditure on account of such presentation to the employees was not expenditure wholly and exclusively laid out for the purpose of its business. The Income-tax Officer, in theassessment order, has not either made out a case that there was extra-commercial consideration in presenting the watches to the employees.
11. We, therefore, answer the third question in the negative (sic) and in favour of the assessee.
12. There will be no order as to costs.
J.N. Hore, J.
13. I agree.