TMI Blog1970 (11) TMI 35X X X X Extracts X X X X X X X X Extracts X X X X ..... in respect of the assessment years 1959-60 1960-61 and 1961-62, respectively, do not fall within section 5(a) or (j) of the Act ? (2) Whether, on a proper construction of section 6(1)(a) and 2(h) of the Act, the assessee is entitled to deduct in the computation of his taxable expenditure for an assessment year the expenditure-tax that would be payable in respect of that assessment year on the estimated basis ? " In or about the year 1952, the assessee had taken to politics and was elected as a member of the Andhra State Legislative Assembly in the general elections held in 1952 and 1955. He was the leader and chairman of the Andhra Pradesh branch of the Praja Socialist Party during the relevant previous years. He became a Minister in the State Cabinet in or about January, 1960, and continued to be so during the relevant time with which we are concerned in this reference. He incurred for the purpose of his occupation of politics substantial sums of money including the amounts in question in this reference by making periodical payments to the party as such and partly by issue of cheques in the names of persons said to be office-bearers of the party. In addition, some payments wer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rson. " We shall first proceed to examine the claim of the assessee under section 5(j) of the Act. The contention of Sri Subramanya Reddy, the learned counsel for the assessee, that the Tribunal erred in holding that the amounts of expenditure disallowed by it are not proved to be donations exempt under section 5(j) of the Act for the purpose of computation of total taxable expenditure, is resisted by Sri P. Rama Rao, the learned standing counsel for the income-tax department, contending, inter alia that those items are not donations within the meaning of section 5(j) and, in any event, the finding of the Tribunal that the amounts are not donations within the meaning of section 5(j). is one of fact and it is binding on this court. Whether a particular item of expenditure is or is not permissible to be exempted under section 5(a) or (j) of the Act, is not a pure question of fact, but one of law as the answer to it turns upon the provisions of clauses (a) and (j) of section 5 and their application to the facts of the case. However, the question whether or not an item of expenditure incurred by an assessee in the previous year amounts to gift, donation or settlement on a trust withi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion relates to movable property, no document, much less a registered deed, is necessary. The mere handing over of a cheque or a sum of money or any movable by the donor to the beneficiary or to any one for and on behalf of the donee would satisfy the requirements of the transaction of "donation" within the meaning of section 5(j). The use of the words "by way of, or in respect of" preceding the words "gift, donation or settlement" in section 5(j) of the Act indicates that any amount of money or money's worth gifted, donated or settled on trust or otherwise for the benefit of any other person by an assessee as well as any amounts expended or incurred in connection with or incidental to those gifts, donations or settlements must be held to be exempted or deducted under section 5(j) from the computation of the total taxable expenditure. The aforesaid expressions would also support the view that even though the transactions do not strictly amount to gifts, donations or settlements, still they are permissible to be exempted under section 5(j) if they are in substance analogous or equivalent to gifts, donations or settlements. In the light of the aforesaid discussion, we shall proceed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be said that the transactions in the present case are unilateral and that there was no acceptance by the donees. It may be noticed that, as far as the individuals are concerned, the cheques have been issued by the assessee in their favour and, hence, it must be held that there was acceptance by the donees in respect of those donations. Hence, there is no merit in this submission of Sri P. Ramarao. In the circumstances, we have no hesitation to hold that the finding of the Tribunal that the amounts in question are not donations within the meaning of section 5(j) of the Act is erroneous, illegal and is not supported by any material. For all these reasons, the items of expenditure, in our considered opinion, are donations and the assessee is entitled to have the same exempted under section 5(j) of the Act. Even assuming for the sake of argument that the items of expenditure in question are not donations permissible to be exempted under section 5(j) of the Act, it then falls for decision whether they are admissible expenditure under section 5(a) which we shall presently consider. As pointed out earlier, this claim of the assessee was rejected on the ground that there was no proof tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rom and out of such vocation by the person who professes such vocation are income and are liable to be taxed. In the light of the aforesaid discussion, we are clear in our minds that politics is an occupation within the meaning of section 5(a) of the Act. The assessee, in the instant case in the circumstances, must undoubtedly be held to be a person who had taken to the occupation of political science during the relevant previous years with which we are concerned in this reference. It is contended by the learned counsel for the revenue that the use of the expression "whether in the nature of revenue expenditure or capital expenditure" in section 5(a) indicates that the words " business, profession, vocation or occupation" used therein must be construed in the same sense in which the words "business, profession and vocation" have been used under the Income-tax Act. In otherwords, it is argued that section 5(a) contemplates only such business, profession, vocation or occupation carried on by the assessee either for the purpose of earning any income or with profit motive. This submission of the learned counsel cannot be acceded to for reasons more than one. Firstly, there can be a b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reliance has been placed by Sri P. Ramarao in support of his contention : " If the expenditure is made for acquiring or bringing into existence an asset or advantage for the enduring benefit of the business, it is properly attributable to capital and is of the nature of capital expenditure. If on the other hand it is made not for the purpose of bringing into existence any such asset or advantage but for running the business or working it with a view to produce the profits, it is a revenue expenditure." The aforesaid passage has no connection and relevancy to the point with which we are concerned. That case arose under the Income-tax Act, 1922, wherein it fell for consideration whether the expenditure in question was a revenue or capital expenditure. If the amount of expenditure was proved to be of revenue nature, it was deductible. Hence, the aforesaid passage only points out the difference and distinction between a revenue and capital expenditure and it has no application to the present controversy. In our opinion, the use of the expression "whether in the nature of revenue expenditure or capital expenditure" is only descriptive of the words "any expenditure" preceding it. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... have been expended wholly and exclusively for the purpose of the occupation of the assessee and on that account, the assessee is not entitled for exemption under section 5(a) of the Act. True, as contended by Mr. Ramarao, that the assessee has not stated that he had any profit motive. However, it is pertinent to notice that when he became a member of the Cabinet, he was receiving the salary and other allowances which are undoubtedly exigible to tax under the Income-tax Act. Any amounts spent by the assessee wholly and exclusively for the purpose of carrying on his occupation must be held to be a permissible deduction under section 5(a). In the instant case, it cannot be said that there is absolutely no material for the Tribunal to hold that the amounts in question have not been expended wholly and exclusively for the purpose of the occupation of the assessee. The expenditure incurred by the assessee was admittedly for the purpose of his occupation. He was the leader and chairman of the Praja Socialist Party. He had to set up candidates on behalf of his party and also work for their success. In fact, he had spent the amounts in question for the purpose of the advancement of his part ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... more than one. Firstly, the expression "including the expenditure-tax payable under this Act" occurring after the words "any taxes" is only descriptive of the word "taxes" which is comprehensive enough to take in the expenditure-tax payable under the Act. Parliament did not wish to leave the matter relating to the construction of the words "any taxes" for any doubt. It has made clear that "any taxes" include the expenditure-tax payable under the Act. This provision has to be construed in the light of the other provisions of the Act, Expenditure-tax is chargeable under section 3 in respect of the expenditure incurred by any individual or Hindu undivided family in the previous year at the rate or rates specified in the Schedule. "Expenditure" is defined under section 2(h) as "any sum in money or money's worth, spent or disbursed or for the spending or disbursing of which a liability has been incurred by an assessee, and includes any amount which under the provisions of this Act is required to be included in the taxable expenditure". The "taxable expenditure" is defined under section 2(o) as the "total expenditure of an assessee liable to tax under this Act ". A combined reading of se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... curred by an assessee for the spending or disbursing of any sum of money or money's worth but also the liability relating to the amount payable under the Act has to be included in computing the total expenditure within the meaning of section 2(h). Expenditure, therefore, means any sum of money or money's worth spent or disbursed or incurred in discharging the liability accrued on account of the spending or disbursing of any amount including any amount required to be paid by an assessee under the Act. The crux of the matter is that a sum in money or money's worth must have been spent or disbursed or incurred by an assessee so as to include such items for computing the expenditure under section 2(h). Thereafter, by deducting the permissible exemptions and deductions provided under sections 5 and 6 respectively, the taxable expenditure within the meaning of section 2(o) has to be arrived at. It is the taxable expenditure that is chargeable to tax under section 3(1) of the Act. It is pertinent to notice the use of the word "incurred" in clauses (b) and (d) of sub-section (1) and sub-section (4) of section 61. The use of the expression "incurred" by the assessee in the aforesaid provisi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ble or required to be paid under the Act, which would enhance the total expenditure to Rs. 9,61,000. Thereafter, under section 6(1)(a), if the tax of Rs. 4,61,000 payable under the Act is deducted, the net result would be that the taxable expenditure will once again revolve to only Rs. 5,00,000. Hence, this submission of the assessee, even if accepted, will have no practical benefit to him as pointed out above. For these reasons, we are clear in our mind that unless the taxes, be it under any enactments including the present Act, are actually paid during the relevant previous years, the assessee is not entitled to have the same deducted under section 6(1)(a) on the ground that such taxes are payable by him though not actually paid. The basis for the argument of Sri Subrahmanya Reddy is that the expenditure-tax has accrued to be paid by the assessee by the end of the accounting year and, therefore, he is entitled to have the same deducted under section 6(1)(a). This theory appears to have been based on the principle that income-tax accrues by the end of the accounting year in respect of any receipt of income by an assessee. However, it may be noticed that under the Indian Income-t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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