1993 (6) TMI 23 - HC - Income Tax

Summary

Issues:
1. Interpretation of the term "capital" under section 13(4) of the Income-tax Act, 1961.
2. Determination of whether reserves are included in the definition of "capital" under section 13(4).
3. Allowability of deficit incurred by the assessee as a set off against other income.
4. Treatment of deficit incurred by a charitable trust running a school in relation to total income computation.

The High Court of GUJARAT addressed four questions referred by the Income-tax Appellate Tribunal. The first issue involved the interpretation of the term "capital" under section 13(4) of the Income-tax Act. The Tribunal had erred in including borrowed money as capital, which was a mistake. The Court clarified that the term "capital" did not include reserves, as argued by the assessee, based on the Companies Act provisions. Consequently, the aggregate funds of the trust exceeded the permissible limit of five percent of the capital. This led to a negative answer in favor of the Revenue for questions 1 and 2.

The second issue pertained to the allowance of deficits incurred by the assessee as a set off against other income. Referring to a Full Bench decision, the Court held that the assessee could raise this point before the Tribunal even if not presented before the Appellate Assistant Commissioner. Therefore, question 3 was answered in favor of the assessee, contrary to the Revenue.

Regarding the treatment of deficits incurred by a charitable trust running a school, the Court affirmed that the income from the school was not taxable and, therefore, the deficits could not be set off against other income for total income computation. Consequently, question 4 was answered in favor of the Revenue.

In conclusion, the Court ruled in favor of the Revenue for questions 1, 2, and 4, while deciding in favor of the assessee for question 3. The reference was disposed of accordingly, with no order as to costs.