1976 (2) TMI 25 - HC - Income Tax

Summary

Issues Involved:
1. Inclusion of amounts received from Prabha Mills in taxable income under Section 41(4) of the Income-tax Act, 1961.
2. Deduction of municipal taxes while computing income from self-occupied property.

Detailed Analysis:

Issue 1: Inclusion of Amounts Received from Prabha Mills in Taxable Income under Section 41(4) of the Income-tax Act, 1961

Facts and Circumstances:
The assessee, a Hindu undivided family, received amounts from Prabha Mills in the assessment years 1964-65, 1965-66, and 1967-68. These amounts were previously written off as bad debts in the assessment year 1959-60. The Income-tax Officer sought to tax these recovered amounts under Section 41(4) of the Income-tax Act, 1961. The assessee contended that these amounts were not taxable under Section 41(4) because the bad debts were written off under Section 10(2)(xi) of the Income-tax Act, 1922.

Tribunal's Decision:
The Tribunal held that Section 41(4) of the 1961 Act could not be applied to debts written off under Section 10(2)(xi) of the 1922 Act, as the two provisions were not in pari materia. Consequently, the Tribunal deleted the additions made by the Income-tax Officer.

Court's Analysis:
The court examined the relevant provisions of both the 1922 Act and the 1961 Act. It was noted that Section 41(4) of the 1961 Act and the proviso to Section 10(2)(xi) of the 1922 Act were almost identical, except for the provision in Section 41(4) that the business need not be in existence in the year of recovery.

Arguments by Revenue:
1. Section 297(2)(k) of the 1961 Act applies, making the allowance of bad debt under the 1922 Act deemed to be under Section 36(1)(vii) of the 1961 Act.
2. Section 24 of the General Clauses Act, 1897, applies, deeming the order under the 1922 Act as under the 1961 Act.
3. The words "or under the corresponding provisions of the Act of 1922" should be read into Section 41(4) to avoid unintended results.
4. The word "under" in Section 41(4) should be interpreted as "as contemplated by."

Court's Conclusion:
The court concluded that Section 24 of the General Clauses Act applies, and the orders made under Section 10(2)(xi) of the 1922 Act must be deemed to have been made under Section 36(1)(vii) of the 1961 Act. Alternatively, the word "under" in Section 41(4) should be interpreted as "as contemplated by." Consequently, the amounts recovered from Prabha Mills are includible in the taxable income of the assessee under Section 41(4).

Judgment:
The court answered the question in Income-tax Reference No. 129 of 1974 in the negative, in favor of the revenue and against the assessee. Similarly, question No. (2) in Income-tax Reference No. 168 of 1974 was answered in the negative, in favor of the revenue and against the assessee.

Issue 2: Deduction of Municipal Taxes While Computing Income from Self-Occupied Property

Facts and Circumstances:
The Tribunal allowed the deduction of municipal taxes while computing the income from self-occupied property.

Court's Analysis:
The court noted that this issue was covered by the decision in Commissioner of Income-tax v. Arvind Narottam, where it was held that municipal taxes must be deducted while calculating the annual letting value of self-occupied property.

Judgment:
The court answered question No. (1) in Income-tax Reference No. 168 of 1974 in the affirmative, in favor of the assessee and against the revenue.

Final Orders:
1. Income-tax Reference No. 129 of 1974: The question was answered in the negative, in favor of the revenue and against the assessee.
2. Income-tax Reference No. 168 of 1974:
- Question No. (1): Answered in the affirmative, in favor of the assessee and against the revenue.
- Question No. (2): Answered in the negative, in favor of the revenue and against the assessee.

The assessee was ordered to pay the costs of the Commissioner in both references. Additionally, leave to appeal to the Supreme Court was granted under Section 261 of the Income-tax Act, 1961, as the case involved substantial questions of law.