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• 1967 (11) TMI 32
  

  Whether section 476, or section 479 A of the Code applies to the instant complaint?

  Held that:- the proceedings under section 26A before respondent No. 1 must be treated as proceedings in a court for the purposes of section 195(1)(b) of the Code of Criminal Procedure. The Income-tax Officer, however, cannot be treated as a revenue court. Though, therefore, proceedings before the Income-tax Officer are judicial proceedings in a court and section 195(1)(b) applies, neither section 476 nor section 479A of the Code would be applicable. It was, therefore, not incumbent upon respondent No. 1 to follow the procedure laid down in either of these two sections. The first contention of Mr. Gupte, therefore, must fail.

  As regards second contention, the question raised by him would be one of evidence the appellants can raise it before the Magistrate trying the complaint. We, therefore, decline to go into that question. Appeal dismissed.

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• 1967 (11) TMI 31
  
  Issues:
  Validity of the gift made by Sardar Ajaib Singh to a public charitable trust and entitlement to refund of tax deducted at source on dividends accrued on the gifted shares.
  
  Analysis:
  The case involved a public charitable trust constituted under a trust deed, which received a gift of 640 fully paid-up shares from one of its trustees, Sardar Ajaib Singh. The gift was made with the condition that it could be revoked after seven years. The trust claimed a refund of tax deducted at source on the dividend income from the shares, which was initially denied by the Income-tax Officer. The Appellate Assistant Commissioner allowed the refund, but the revenue appealed to the Appellate Tribunal.
  
  The Tribunal held that the gift was valid and complete, and as the trust became the rightful owner of the shares during the relevant period, it was entitled to the refund of tax deducted at source. The Tribunal referred two questions to the High Court, questioning the validity of the gift and the entitlement to the tax refund.
  
  The revenue argued that the trust was not entitled to receive gifts and donations from the public as it was not explicitly authorized in the trust deed. The revenue further contended that the gift might have formed a separate trust, and the trustees could not claim exemption under the Income-tax Act for the income from the gifted shares.
  
  The counsel for the trust argued that the trustees had the inherent power to accept gifts and donations, and there was no requirement for express authorization in the trust deed. However, the High Court held that the trustees did not have the liberty to accept further gifts without specific authorization, as it could modify the original trust's purpose. The High Court also noted that a previous wealth-tax reference case did not support the trust's claim for tax refund on the gifted shares.
  
  In conclusion, the High Court held that the gift by Sardar Ajaib Singh was valid but did not augment the trust. Therefore, the trust was not entitled to the refund of tax deducted at source on the dividends accrued from the gifted shares. The High Court ruled against the trust, requiring it to pay the costs of the reference to the Commissioner of Income-tax.
  
  The judgment was delivered by Justice Banerjee, with agreement from Justice K. L. Roy.

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• 1967 (11) TMI 30
  
  Issues Involved:
  1. Whether the sum of Rs. 4,00,000 should be included in the total income of the assessee.
  
  Issue-wise Detailed Analysis:
  
  1. Inclusion of Rs. 4,00,000 in Total Income:
  
  Background:
  The primary issue in this case is whether a sum of Rs. 4,00,000 should be included in the total income of the assessee. The Income-tax Officer included this amount, but both the Appellate Assistant Commissioner and the Appellate Tribunal excluded it, deciding against the revenue.
  
  Facts:
  - A joint venture existed between two companies for the purchase and sale of machinery.
  - The interest in the venture was sold to the assessee-company and another entity.
  - The remaining machinery was divided between these two entities.
  - The assessee-company received machinery valued at Rs. 2,06,372 and later appreciated its value by Rs. 4,00,000 in its books.
  - The machinery was then transferred to a new partnership firm at the appreciated value.
  
  Revenue's Argument:
  - The revenue contended that the transaction was essentially a sale of machinery at a profit of Rs. 4,00,000 and should be included in the total income of the assessee.
  - They argued that the transaction should be viewed from a commercial perspective, indicating a clear transfer of the partner's asset to the firm at a higher value.
  - They claimed that the transfer occurred between two distinct entities: the assessee-company and the partnership firm.
  
  Assessee's Argument:
  - The assessee argued that there was no sale or transfer between the assessee-company and the partnership firm, as the firm was not a juristic person.
  - They relied on various legal precedents to support that no real income or profit was received from the transaction.
  
  Legal Precedents Discussed:
  - Kikabhai Premchand v. Commissioner of Income-tax: The Supreme Court held that withdrawal of stock-in-trade did not result in income or profit.
  - Commissioner of Income-tax v. Homi Mehta's Executors: The Bombay High Court ruled that transferring shares to a company was not a business activity or sale.
  - Rogers and Co. v. Commissioner of Income-tax: The transfer of firm assets to a company was seen as a readjustment, not a sale.
  - Commissioner of Income-tax v. Bai Shirinbai K. Kooka: The Supreme Court distinguished between actual profits from sales and notional profits from stock withdrawals.
  - Commissioner of Income-tax v. Mugneeram Bangur & Co.: The Supreme Court ruled that the sale of a business as a going concern did not attribute profit to the stock-in-trade.
  - Associated Clothiers Ltd. v. Commissioner of Income-tax: The Supreme Court upheld the revenue's stance when the consideration for each item sold was specified.
  
  Court's Analysis:
  - The court emphasized the substance over form in determining taxability.
  - It was noted that the assessee-company merely appreciated the value of its machinery before transferring it to the partnership firm.
  - The court found no real income or profit from the transaction, as it was a readjustment of assets within the same entity.
  - The court also highlighted that a partnership firm is not a juristic person distinct from its partners, thus no sale or transfer could occur between the assessee-company and the firm.
  
  Conclusion:
  - The court concluded that the transaction did not yield any real income or profit for the assessee.
  - The question was answered in the affirmative, favoring the assessee, and the sum of Rs. 4,00,000 was not included in the total income.
  - The assessee was entitled to costs.
  
  Judgment:
  - The judgment was delivered in favor of the assessee, with the court agreeing that the sum of Rs. 4,00,000 should not be included in the total income of the assessee.
  - The decision was concurred by both judges, and the question was answered affirmatively.

  ---

• 1967 (11) TMI 29
  

  Dividend paid to assessee in form of shares - ITO concluded that the total shares, received by the assessee were equivalent in terms of money to Rs. 2,44,526. Since the assessee had shown the value of the shares at Rs. 1,82,870 only he added back the difference of Rs. 61,656 to the assessee`s income as dividend - held that tribunal was right in excluding the sum of Rs. 61,656 from being assessed as an extra dividend income of the assessee

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• 1967 (11) TMI 28
  
  Issues Involved:
  
  1. Legality of the notices issued under sections 35 and 17(4) of the Agricultural Income-tax Act, 1950.
  2. Existence of a Hindu undivided family (HUF) during the relevant accounting year.
  3. Applicability of the principle of res judicata.
  4. Constitutionality of section 29 of the Agricultural Income-tax Act, 1950, in light of Article 14 of the Constitution.
  
  Issue-wise Detailed Analysis:
  
  1. Legality of the Notices Issued Under Sections 35 and 17(4) of the Agricultural Income-tax Act, 1950:
  
  The petitioner challenged the validity of the notices issued under sections 35 and 17(4) of the Agricultural Income-tax Act, 1950. The court observed that the reasoning in O.P. No. 1495 of 1964, which quashed a similar notice, is equally applicable here. The court reiterated that the notices were against the undertaking given by the Government Pleader in O.P. No. 340 of 1959 and contrary to the court's previous directions. Therefore, exhibits P-1 and P-3 were quashed on this ground.
  
  2. Existence of a Hindu Undivided Family (HUF) During the Relevant Accounting Year:
  
  The court examined whether there was a Hindu undivided family in existence during the accounting year from April 1, 1960, to March 31, 1961. The court noted that the members of the Poomuli Mana had partitioned their properties by metes and bounds on March 30, 1958, and the petitioner ceased to be the manager of the family. The court held that section 29 of the Agricultural Income-tax Act, 1950, as amended by Act 12 of 1964, does not alter the fact that there was no HUF during the relevant accounting year. The court stated that the income must be received by the joint family as such for it to be assessed under section 29. Since the family was no longer joint, the notices issued to assess the petitioner as the manager of the HUF were illegal and without jurisdiction.
  
  3. Applicability of the Principle of Res Judicata:
  
  The petitioner argued that the assessment proceedings were barred by res judicata due to previous court decisions. The court noted that the principle of res judicata applies to tax cases only to the extent that it prevents re-litigation of the same issue between the same parties. The court observed that the previous decisions had become final and binding, and the department could not bypass those orders to assess the petitioner as the manager of the HUF. Therefore, the court held that the assessment proceedings based on the impugned notices were barred by res judicata.
  
  4. Constitutionality of Section 29 of the Agricultural Income-tax Act, 1950, in Light of Article 14 of the Constitution:
  
  The petitioner contended that section 29 of the Agricultural Income-tax Act, 1950, as amended, violated Article 14 of the Constitution. The court did not express an opinion on this issue, as the petitioner had already succeeded on the findings regarding the other points. However, the court noted that the legislature has wide latitude in making classifications in taxing statutes, and the burden of proving that the classification is unreasonable lies on the petitioner.
  
  Separate Judgment by Mathew J.:
  
  Mathew J. dissented from the majority opinion. He argued that the legislature has the power to create a legal fiction and treat a disrupted family as a Hindu undivided family for the purpose of assessment. He stated that the amendment to section 29 extended the fiction to families being assessed for the first time and that the petitioner could be assessed as the manager of the HUF unless he proved that all the properties were divided in definite portions. Mathew J. concluded that the respondent had jurisdiction to proceed under the notices issued and would have dismissed the petition.
  
  Conclusion:
  
  In conclusion, the majority allowed the petition and issued a writ of prohibition restraining the respondent from taking further proceedings against the petitioner based on exhibits P-1 and P-3. The petitioner was awarded costs, including an advocate's fee of Rs. 250. Mathew J. dissented, arguing that the respondent had jurisdiction to proceed with the assessment.

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• 1967 (11) TMI 27
  
  Issues Involved:
  1. Liability of the petitioner-company as a guarantor under section 172 of the Income-tax Act.
  2. Liability of the petitioner-company in relation to the ship owners.
  3. Violation of principles of natural justice in the assessment order.
  4. Enforceability of the guarantee bond under Article 299(1) of the Constitution.
  
  Issue-wise Detailed Analysis:
  
  1. Liability of the petitioner-company as a guarantor under section 172 of the Income-tax Act:
  The primary issue was whether the petitioner-company, acting as a guarantor, was liable to pay tax under section 172 of the Income-tax Act. The petitioner argued that the time charterers, who were the disponee owners of the ship and the iron ore, were not liable under section 172 since they carried their own goods and did not earn freight. The court examined the scheme of section 172, highlighting that it applies to ships carrying goods shipped at an Indian port and that one-sixth of the amount paid or payable for such carriage is deemed income accruing in India to the owner or charterer. The court concluded that the time charterers, carrying their own goods, did not earn any freight, and thus section 172 was not applicable. Consequently, the petitioner-company, as a guarantor, was not liable for the tax.
  
  2. Liability of the petitioner-company in relation to the ship owners:
  The petitioner-company contended that its liability was limited to the time charterers and not the ship owners. The court agreed, noting that the guarantee bond was given on behalf of the time charterers, not the ship owners. The court found that the petitioner-company acted as agents for the master of the ship, who was an agent of the time charterers during the voyage. Since there were no freight earnings by the time charterers, the petitioner-company was not liable. The court also noted that the owners of the ship, having let it out on hire, had no involvement in the carriage of the iron ore, and therefore, their liability, if any, did not affect the petitioner-company.
  
  3. Violation of principles of natural justice in the assessment order:
  The court examined whether the assessment order violated the principles of natural justice. It was established that the assessment proceeding under section 172 was quasi-judicial, requiring a fair hearing. The petitioner-company was not given a reasonable opportunity to contest the basis of the assessment. The court emphasized that the respondent No. 2 acted without jurisdiction by misreading section 172 and failed to observe the principles of natural justice. The court highlighted the necessity of a fair hearing, citing the principle that no one should be condemned without an opportunity to be heard.
  
  4. Enforceability of the guarantee bond under Article 299(1) of the Constitution:
  The petitioner-company argued that the guarantee bond did not comply with the mandatory requirements of Article 299(1) of the Constitution. However, this plea was not raised in the writ petition or affidavits. The court noted that issues of law should be pleaded in the writ petitions or affidavits to apprise the opposite party. Since this issue was not adequately pleaded and might require evidence, the court deemed it unnecessary to address this question.
  
  Conclusion:
  The court ruled in favor of the petitioner-company on the first three issues, quashing the assessment order and the notice of demand. The respondents were directed not to enforce the tax liability against the petitioner-company and the time charterers. The fourth issue was not addressed due to insufficient pleading. The petitions were allowed with costs assessed at Rs. 100 in each case.

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• 1967 (11) TMI 26
  
  Issues Involved:
  1. Admissibility of payments as business expenditure.
  2. Nature of payments: Revenue or capital expenditure.
  
  Issue-wise Detailed Analysis:
  
  1. Admissibility of Payments as Business Expenditure:
  
  The assessee, Coal Shipments (Private) Ltd., claimed certain payments made to Messrs. H. V. Low & Co. Ltd. as admissible business expenditure. These payments were made under an arrangement where H. V. Low & Co. Ltd. would not export coal to Burma and would assist the assessee in the export business. The Income-tax Officer disallowed the claim on the grounds that there was no written agreement to prove the arrangement and that the payments were made to secure a monopoly, thus not allowable as revenue expenses. The Appellate Assistant Commissioner upheld this decision. However, the Appellate Tribunal, after examining the oral testimony and affidavit of Sir Walter Michelmore, found that the payments were made in the interest of the assessee's business and were not ex gratia. The Tribunal also found that the agreement was acted upon and that the payments were made under a valid arrangement, thus allowing the appeal and modifying the assessment by excluding the sums claimed by the assessee as business expenditure.
  
  2. Nature of Payments: Revenue or Capital Expenditure:
  
  The core issue was whether the payments made by the assessee to Messrs. H. V. Low & Co. Ltd. were of a capital nature and thus not allowable under section 10(2)(xv) of the Indian Income-tax Act, 1922. The Tribunal held that the payments were not made to secure a monopoly in the trade, as the shipment of coal to Burma was under an Open General Licence, allowing all traders to export coal. The Tribunal observed that the arrangement did not create any enduring benefit or capital advantage for the assessee. The payments were made to carry on the trade in a more facile and profitable manner and were thus considered as revenue expenditure. The High Court agreed with the Tribunal, stating that the arrangement was a temporary measure and did not bring about any capital advantage. The expenditure was made for the purpose of carrying on the business more conveniently and profitably, thus qualifying as revenue expenditure.
  
  The High Court referred to the Supreme Court's tests in Assam Bengal Cement Co. v. Commissioner of Income-tax, which distinguish between capital and revenue expenditure based on the nature and purpose of the outlay. The Court concluded that the payments were not made to acquire a capital asset or enduring benefit but were operational expenses aimed at facilitating the business. Therefore, the payments were allowable as revenue expenditure under section 10(2)(xv) of the Indian Income-tax Act, 1922.
  
  Conclusion:
  
  The High Court answered the question in the negative, in favor of the assessee, holding that the payments were revenue expenditure and thus allowable as business expenditure. The assessee was entitled to costs, and the question was answered in the negative.

  ---

• 1967 (11) TMI 25
  
  Issues:
  1. Delay in filing the appeal beyond the statutory period.
  2. Justification for refusing to admit the appeal by the Board of Revenue.
  
  The judgment pertains to a reference made under section 64(1) of the Estate Duty Act, 1953, involving questions of law related to the delay in filing an appeal and the justification for refusing to admit the appeal. The deceased was a Taluqedar and proprietor of an estate, and the accountable person failed to file a valid account of the property within the prescribed period. The Assistant Controller determined the estate's value and imposed duty, leading to an appeal by the accountable person. The appeal was filed beyond the limitation period, with reasons provided for the delay due to the accountable person's illness. The Board of Revenue dismissed the appeal, prompting the reference to the High Court.
  
  Regarding the first question, the court analyzed the legal provision under section 63(2) of the Act, akin to section 5 of the Indian Limitation Act. The court noted that the Board of Revenue erred in expecting a detailed explanation for each day of delay in filing the appeal. Citing precedent, the court clarified that lack of diligence until the last day of limitation does not disqualify an appellant from seeking condonation of delay. The court found the Board's decision flawed, as it considered irrelevant factors and misconceived the legal position. Consequently, the court answered the first question in favor of the assessee, highlighting the Board's incorrect application of the law.
  
  Addressing the second question, the court emphasized that the Board of Revenue failed to consider the sufficient cause provided by the appellant for the delay in filing the appeal. Despite accepting the appellant's illness as a fact, the Board questioned the timing and extent of the illness, overlooking the legal requirement to explain the delay until the last day of limitation. The court criticized the Board's approach, stating that even if the appellant became unconscious after the illness onset, the explanation for the delay would remain valid. The court concluded that the Board's assessment was legally flawed, leading to a negative answer in favor of the assessee. As there was no representation from the assessee, no costs were awarded in the matter.
  
  In summary, the High Court ruled in favor of the assessee, highlighting the incorrect application of legal principles by the Board of Revenue in assessing the delay in filing the appeal and justifying the refusal to admit it. The judgment underscored the necessity to consider relevant legal standards and factual circumstances when determining the sufficiency of cause for delays in legal proceedings.

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• 1967 (11) TMI 24
  

  Indian Sale of Goods Act, 1930 - assessee-company is a dealer in jute in East Pakistan as well as in India - there was no unconditional appropriation of the goods by the buyer, as soon as they were placed on board the steamer on C.I.F. terms - unconditional appropriation, therefore, took place in India, notwithstanding the c.i.f. terms and the title to the goods passed to the buyers in India

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• 1967 (11) TMI 23
  

  Assessee-company explained the losses on three considerations- because of abnormal conditions obtaining in the year 1947 due to raids, because of loss due to floods, and because of some of the timber having been washed down - Whether there was no material or evidence that the shortage claimed by the assessee-company is excessive or unwarranted

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• 1967 (11) TMI 22
  
  Issues Involved:
  1. Competence of the Tribunal to consider the admissibility of the appeal before the Appellate Assistant Commissioner.
  2. Right of the assessee to appeal before the Appellate Assistant Commissioner on the question of allowability of the expenditure.
  
  Detailed Analysis:
  
  1. Competence of the Tribunal to Consider the Admissibility of the Appeal:
  
  The first issue was whether the Tribunal was competent to consider the question of the admissibility of the appeal filed by the assessee before the Appellate Assistant Commissioner. The Tribunal is invested with authority to hear appeals against orders passed by Appellate Assistant Commissioners under section 28 or section 31 of the Indian Income-tax Act. Rule 12 of the Appellate Tribunal Rules states that the appellant shall not, except by the leave of the Tribunal, urge any ground not set forth in the memorandum of appeal. However, the Tribunal is not confined to the grounds set forth in the memorandum of appeal or taken by leave of the Tribunal.
  
  The Tribunal's powers are similar to those of a court of appeal under the Civil Procedure Code. The subject matter of appeal before the Tribunal includes the grounds of appeal raised by the appellant, the grounds allowed by the Tribunal, and the contentions raised by the respondent in support of the order made by the Appellate Assistant Commissioner.
  
  The Appellate Assistant Commissioner's powers under section 31 of the Act are broader, including revisional jurisdiction to revise the assessment and enhance it. However, the Supreme Court in Commissioner of Income-tax v. Shapoorji Pallonji Mistry indicated that the Appellate Assistant Commissioner should not travel outside the record to find new sources of income.
  
  In this case, the Tribunal considered whether the Appellate Assistant Commissioner had jurisdiction to entertain the appeal regarding the allowability of the Rs. 12,000 expenditure. The Tribunal concluded that the Appellate Assistant Commissioner should have remanded the matter to the Income-tax Officer for consideration, rather than allowing the claim outright. Thus, the Tribunal did not exceed its jurisdiction in deciding on the maintainability of the appeal. Therefore, Question No. 1 was answered in the affirmative and against the assessee.
  
  2. Right of the Assessee to Appeal Before the Appellate Assistant Commissioner:
  
  The second issue was whether the Tribunal was right in holding that the assessee had no right to appeal before the Appellate Assistant Commissioner. The Supreme Court in Commissioner of Income-tax v. Rai Bahadur Hardutroy Motilal held that the Appellate Assistant Commissioner could not assess a source of income not disclosed in the returns or the assessment order. The power of enhancement is restricted to sources of income considered by the Income-tax Officer.
  
  The assessee argued that the Appellate Assistant Commissioner had the right to consider whether the income computed by the Income-tax Officer should be reduced by excluding an admissible business expenditure. The revenue contended that since the Income-tax Officer had not considered the expenditure, the Appellate Assistant Commissioner could not allow it.
  
  The judgment clarified that nothing prevents an assessee from making a new claim for deduction before the Appellate Assistant Commissioner, who may remand the matter to the Income-tax Officer for consideration. The absence of materials in the assessment order does not affect the right of the assessee to appeal. The Tribunal erred in holding that the assessee had no right to appeal. Therefore, the second question was answered in the negative and in favor of the assessee.
  
  In conclusion, the first question was answered in the affirmative and against the assessee, while the second question was answered in the negative and in favor of the assessee. No order as to costs was made due to the divided success.

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• 1967 (11) TMI 21
  
  Issues Involved:
  1. Taxability of advertisement charges received from members under section 10(6) of the Indian Income-tax Act.
  2. Deductibility of the entire cost of production of the magazine from advertisement receipts.
  
  Detailed Analysis:
  
  Issue 1: Taxability of Advertisement Charges Received from Members
  
  The primary issue was whether the advertisement charges received by the assessee from its members were liable to tax under section 10(6) of the Indian Income-tax Act. The assessee, a mutual association, argued that these charges should not be taxable as income. The Income-tax Officer included these charges in the total income, which was upheld by the Appellate Assistant Commissioner and the Income-tax Appellate Tribunal. The Tribunal cited section 10(6), which deems a trade, professional, or similar association performing specific services for its members for remuneration to carry on business, making the profits and gains taxable.
  
  The assessee contended that it was a mutual concern run on a no-profit basis, and its activities did not fall under section 10(6). They relied on the Supreme Court decision in Commissioner of Income-tax v. Royal Western India Turf Club Ltd., where it was held that the company was not a trade association within the meaning of section 10(6). The revenue did not dispute this but suggested reframing the question to determine the taxability of the advertisement charges received from members.
  
  The court agreed to reframe the question to "Whether, on the facts and in the circumstances of the case, the advertisement charges received by the assessee from its members are liable to tax?" The principle of mutuality was discussed, which posits that a person cannot make a profit out of himself. However, the court noted that mutuality requires an identity between contributors and participators in the fund. The Supreme Court's reversal of the Madras High Court's decision in Kumbakonam Mutual Benefit Fund Ltd. clarified that all participators must be contributors to the common fund.
  
  Applying this principle, the court found that the assessee-Association was making a profit from some members through advertisement charges, which were not distributed among them as advertisers but went to the general fund. This absence of mutuality made the profit taxable. Thus, the court answered the reframed question in the affirmative and against the assessee.
  
  Issue 2: Deductibility of the Entire Cost of Production of the Magazine
  
  The second issue was whether the entire cost of production of the magazine should be deductible from the advertisement receipts. The revenue had allocated 35% of the total cost as attributable to the advertisement portion, which the assessee contested, claiming the entire cost should be deductible.
  
  The court emphasized that advertisements are sought in a popular magazine, which requires producing the magazine. The journal's production cost is inseparable from the advertisement portion. The court held that the entire cost of producing the magazine should be set off against the advertisement income, as the journal's production was essential for earning advertisement income. Therefore, the court answered this question in the affirmative and in favor of the assessee.
  
  Conclusion:
  The court ruled that the advertisement charges received from members were taxable, but the entire cost of producing the magazine should be deductible from the advertisement receipts. The judgment resulted in divided success for the parties, with no order as to costs.

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• 1967 (11) TMI 20
  
  Issues Involved:
  1. Validity of the warrants of authorization under Section 132 of the Income-tax Act, 1961.
  2. Whether the search and seizure were conducted in an arbitrary, excessive, and indiscriminate manner.
  3. Compliance with procedural requirements under Section 132 and Rule 112 of the Income-tax Rules, 1962.
  4. Whether the retention of the seized documents beyond 180 days was valid.
  
  Detailed Analysis:
  
  1. Validity of the warrants of authorization under Section 132 of the Income-tax Act, 1961:
  
  The petitioners contended that the power to search and seize under Section 132 of the Income-tax Act, 1961, was subject to a condition precedent, which must be satisfied before the power could be exercised. The Commissioner of Income-tax or the Director of Inspection must have "reason to believe" that the person would not produce the required documents. The petitioners argued that they had always complied with requests for document production, and thus, the condition precedent was not satisfied. The court held that the Commissioner had ample materials and grounds to form the belief that the books and documents would not be produced if called upon to do so, thus satisfying the condition precedent for issuing the warrants of authorization.
  
  2. Whether the search and seizure were conducted in an arbitrary, excessive, and indiscriminate manner:
  
  The petitioners argued that the search and seizure were excessive, arbitrary, and indiscriminate, citing the seizure of over 1,300 documents, many of which were old or irrelevant. The court examined the warrants of authorization and the written instructions provided to the searching officers, which specified the nature and class of documents to be seized. The court found that the search and seizure at the office premises were conducted with due scrutiny and relevance, and the current books were returned to the petitioners. However, the search at the residential premises was not yet complete due to the petitioners' request to halt the search because of an illness in the family. The court concluded that the search and seizure were not arbitrary or excessive.
  
  3. Compliance with procedural requirements under Section 132 and Rule 112 of the Income-tax Rules, 1962:
  
  The petitioners contended that the search and seizure were illegal as the Commissioner did not specify the particular documents to be seized and left it to the officers' discretion. The court held that Section 132 does not require the Commissioner to specify particular documents in the warrants of authorization. The written instructions provided sufficient guidance on the documents to be seized. The court also rejected the petitioners' argument that Rule 112 was ultra vires Section 132, noting that the rules were intended to govern and control the exercise of power under Section 132.
  
  4. Whether the retention of the seized documents beyond 180 days was valid:
  
  The petitioners argued that the documents should be returned as they were retained beyond 180 days without proper approval. The court noted that the petitioners did not plead this point initially, and the respondents had recorded reasons for retaining the documents with the Commissioner's approval. The court also clarified that the proviso to sub-section (8) of Section 132 deals with the return of documents after the completion of proceedings, not within 210 days of seizure. The court found no merit in the petitioners' argument that the approval order was invalid due to non-communication, as the respondents did not have the opportunity to address this new contention.
  
  Conclusion:
  
  The court dismissed the petition, upholding the validity of the search and seizure conducted under Section 132 of the Income-tax Act, 1961. The court found that the warrants of authorization were issued with proper grounds and that the search and seizure were not arbitrary or excessive. The procedural requirements were duly followed, and the retention of documents beyond 180 days was justified with proper approval. The rule nisi was discharged, and each party was ordered to bear its own costs.

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• 1967 (11) TMI 19
  
  Issues Involved:
  1. Ownership and Taxability of Trust Fund
  2. Nature of the Assessee's Interest in the Trust Fund
  3. Applicability of Exemption under Section 2(e)(iv) of the Wealth-tax Act
  4. Impact of Power of Appointment on Taxability
  
  Issue-wise Detailed Analysis:
  
  1. Ownership and Taxability of Trust Fund
  The primary issue was whether the assessee, Mrs. Dorothy Martin, was the owner of any part of the trust fund and whether the value of her share in the trust fund should be included in her assessable wealth. The Wealth-tax Officer included the entire value of the assessee's share in the trust fund in her assessable wealth, which was contested by the assessee. The Appellate Assistant Commissioner upheld the Wealth-tax Officer's decision, stating that the assessee had a power of appointment over the trust funds, which implied a broader interest than mere life interest. However, the Appellate Tribunal disagreed, asserting that the legal ownership of the funds vested in the trustees, not the assessee, and her interest was merely equitable and not absolute.
  
  2. Nature of the Assessee's Interest in the Trust Fund
  The assessee contended that she had only a right to an annuity for her life, precluding the commutation into a lump sum, thus qualifying for exemption under Section 2(e)(iv) of the Wealth-tax Act. The Appellate Tribunal supported this view, stating that the assessee's life interest in the annuity had no marketable value due to the restraint on anticipation. Conversely, the revenue argued that the assessee's interest was not merely an annuity but an aliquot share in the general income of the trust fund. The court agreed with the revenue, noting that the assessee was entitled to an aliquot share in the general income, not a fixed sum payable periodically, thus disqualifying her from the claimed exemption.
  
  3. Applicability of Exemption under Section 2(e)(iv) of the Wealth-tax Act
  The court examined whether the assessee's right could be classified as an annuity under Section 2(e)(iv) of the Wealth-tax Act, which exempts annuities that cannot be commuted into a lump sum. The court referred to legal definitions and precedents to conclude that an annuity implies a fixed sum payable periodically. Since the assessee's entitlement was to a variable income from the trust fund, it did not qualify as an annuity. Therefore, the exemption under Section 2(e)(iv) was not applicable.
  
  4. Impact of Power of Appointment on Taxability
  The revenue argued that the power of appointment vested in the assessee to bequeath her share in the trust fund to any of her children indicated a broader interest than a mere life interest. The Appellate Tribunal found this argument unconvincing, noting that the assessee's power of appointment was restricted to her children, and she had no children and was around 60 years old, making the power of appointment practically non-existent. The court, however, concluded that the power of appointment, in general, could augment the right of an annuitant, but in this specific case, it did not significantly affect the assessee's interest due to her personal circumstances.
  
  Conclusion:
  The court held that the sums of Rs. 7,29,241, Rs. 7,35,211, and Rs. 7,35,666 were assessable as the net wealth of the assessee on the respective valuation dates. The assessee's interest in the trust fund was not merely an annuity but an aliquot share in the general income, disqualifying her from the claimed exemption under Section 2(e)(iv) of the Wealth-tax Act. The power of appointment did not significantly alter the taxability of her interest due to her specific circumstances. The question referred to the court was answered in the affirmative, in favor of the revenue, and the Commissioner of Wealth-tax was entitled to costs.

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• 1967 (11) TMI 18
  
  Issues:
  1. Whether the Wealth-tax Act, specifically levying tax on Hindu undivided families, is ultra vires the powers of Parliament and discriminatory?
  
  Analysis:
  The judgment pertains to a reference made under section 27(1) of the Wealth-tax Act, 1957, by the Income-tax Appellate Tribunal, Bombay, regarding the validity of taxing Hindu undivided families. Initially, the Tribunal referred a composite question challenging the legislative competency of Parliament to levy tax on Hindu undivided families. The Tribunal's action was based on the belief that it could question the vires of the provisions under which it functions. However, the court held the reference to be incompetent due to the principle established in K. S. Venkataraman & Co. (P.) Ltd. v. State of Madras, stating that a tribunal cannot question the vires of the provisions under which it operates. Despite this, the court proceeded to provide an answer to the question for the parties' benefit.
  
  Regarding the legislative competency of Parliament to tax Hindu undivided families, the court relied on the Supreme Court's decision in Banarsi Dass v. Wealth-tax Officer, affirming that the Wealth-tax Act's provision taxing Hindu undivided families falls within Parliament's jurisdiction. The court emphasized that the expression "individual" in the Constitution includes Hindu undivided families, making the levy of wealth tax on them intra vires.
  
  On the issue of discrimination, the court addressed the argument that taxing Hindu undivided families differently constitutes discrimination. However, the court rejected this contention, citing legal precedents that allow for the classification of taxpayers into different categories. The court highlighted that the unique nature of Hindu undivided families justifies their distinct taxation as a separate entity. The court emphasized the rational classification of taxpayers into individuals, Hindu undivided families, and companies, each taxed differently based on their circumstances. The court concluded that the Wealth-tax Act does not violate Article 14 of the Constitution by taxing Hindu undivided families differently.
  
  In conclusion, the court answered both aspects of the question by affirming the validity of taxing Hindu undivided families under the Wealth-tax Act and dismissing claims of discrimination. The Commissioner was awarded costs, and the counsel's fee was fixed at Rs. 100.

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• 1967 (11) TMI 17
  
  Issues Involved:
  
  1. Deductibility of amounts in the "special reserve account" in determining the net wealth.
  2. Deductibility of amounts in the "shareholders' account" in determining the net wealth.
  3. Deductibility of debenture liabilities as debts owed by the company under section 2(m) read with section 6 of the Wealth-tax Act.
  
  Issue-Wise Analysis:
  
  1. Deductibility of amounts in the "special reserve account":
  
  The Tribunal held that the amounts in the "special reserve account" were not includible in the company's net wealth. The reasoning was that the company was bound to run its undertaking within the rigid framework of an Act of State legislature, which included a provision for setting apart surplus profits for the benefit of the Government. The Tribunal opined that the company held these amounts on Government account and that it would not be proper to include these amounts in the net wealth of the company. However, the High Court disagreed, stating that the money in this account was not irrevocably transferred and could be used to set off losses, thus remaining under the company's control. Consequently, the High Court answered this issue in the negative and against the assessee, indicating that these amounts should be included in the net wealth.
  
  2. Deductibility of amounts in the "shareholders' account":
  
  The Tribunal affirmed the Appellate Assistant Commissioner's decision to disallow the deduction of amounts in the "shareholders' account." The Tribunal reasoned that the amounts could only be used for declaring dividends to shareholders and did not constitute a debt owed by the company. The High Court agreed, noting that the money in the "shareholders' account" did not become a debt until dividends were declared. Since there was no evidence of declared dividends, the amounts remained part of the company's assets. Therefore, the High Court answered this issue in the negative and against the assessee, confirming that these amounts should be included in the net wealth.
  
  3. Deductibility of debenture liabilities:
  
  The Tribunal reversed the Appellate Assistant Commissioner's decision to allow the deduction of debenture liabilities. The Tribunal held that the debenture debts were located outside India, as they were owed to creditors in the United Kingdom and secured by a floating charge on the company's assets in India. The High Court agreed, referencing legal principles that specialty debts are situated where the instrument is physically located. Since the debentures were in the United Kingdom, the debts were considered located outside India and thus excluded from the net wealth computation under section 6 of the Wealth-tax Act. The High Court answered this issue in the negative and against the assessee, confirming that these liabilities should not be deducted in determining the net wealth.
  
  Conclusion:
  
  The High Court's judgment resulted in all three issues being answered in the negative and against the assessee, meaning that the amounts in the "special reserve account" and "shareholders' account" should be included in the net wealth, and the debenture liabilities should not be deducted. The Commissioner was entitled to the costs of the reference.

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• 1967 (11) TMI 16
  

  Remarks were made in an IT proceedings affecting a third person who was not a party to the proceedings and the latter applied to the Court which heard the IT reference for inspection of records of the proceedings - whether the firm, represented by G, is entitled to inspect the proceedings to which proceeding the firm was not a party

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• 1967 (11) TMI 15
  
  Issues Involved:
  
  1. Validity of reassessment proceedings under section 17(b) of the Wealth-tax Act, 1957.
  2. Inclusion of the market value of compensation installments due under the Madhya Bharat Abolition of Jagirs Act in the total wealth of the assessee.
  
  Issue-wise Detailed Analysis:
  
  1. Validity of Reassessment Proceedings under Section 17(b):
  
  The first issue addresses whether the proceedings for reassessment under section 17(b) of the Wealth-tax Act, 1957, were validly initiated. The court referenced the Supreme Court's decision in Maharaj Kumar Kamal Singh v. Commissioner of Income-tax, which interpreted "information" in section 34(1)(b) of the Indian Income-tax Act, 1922, as including not only factual information but also information leading to a belief about the correct state of the law, including judicial decisions. Given the similarity between section 17(1)(b) of the Wealth-tax Act and section 34(1)(b) of the Income-tax Act, the court held that the Wealth-tax Officer was justified in reopening the assessment upon learning of the Appellate Tribunal's decision in the case of Dadu Jagdishsingh of Rewa. Thus, the reassessment proceedings were validly initiated.
  
  2. Inclusion of Compensation Installments in Total Wealth:
  
  The second issue concerns whether the market value of the installments due under the Madhya Bharat Abolition of Jagirs Act should be included in the assessee's total wealth. The court first referred to the relevant provisions of the Wealth-tax Act, including the definitions of "net wealth," "assets," and "valuation date." The court emphasized that wealth-tax is charged on the aggregate value of all assets belonging to the assessee on the valuation date, irrespective of their location.
  
  The court noted that a debt owed to an assessee on the valuation date is considered an asset, whether it is a present or future debt. This principle is supported by established legal precedents, including Syud Tuffuzzool Hossein Khan v. Rughoonath Pershad and E. D. Sassoon & Co. Ltd. v. Commissioner of Income-tax. A debt payable in the future by reason of a present obligation is still an asset, even if the payment is deferred.
  
  Examining the relevant provisions of the Madhya Bharat Abolition of Jagirs Act, the court found that the compensation amount payable to an ex-jagirdar for the resumption of his jagir is a certain sum of money payable in the future due to a present obligation. The compensation amount became due from the date of resumption, although it was payable in up to ten annual installments. Thus, the unpaid compensation installments were considered a debt owed to the assessee and, therefore, an asset.
  
  The court concluded that the Wealth-tax Officer correctly included the amount of these installments in the computation of the assessee's net wealth. As these unpaid compensation installments are "cash assets," their market value does not need to be determined separately, as cash is valued at its face value in legal currency.
  
  The court supported its conclusion by referencing similar judgments from the Andhra Pradesh High Court and the Patna High Court, which also held that compensation amounts payable in future installments due to a present obligation are assets for wealth-tax purposes.
  
  Conclusion:
  
  The court answered the first question affirmatively, confirming the validity of the reassessment proceedings. For the second question, the court held that the amount of installments payable to the assessee under the Jagirs Act after the valuation date must be included in the computation of the total wealth of the assessee. The department was awarded costs for the reference, with counsel's fee fixed at Rs. 200.

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• 1967 (11) TMI 14
  
  The High Court of Madhya Pradesh ruled that an oral transfer of property in lieu of a dower debt without a registered document is ineffective. Therefore, the income from the property remains assessable in the assessee's income. The court directed the assessee to pay all costs of the reference.

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• 1967 (11) TMI 13
  
  Issues:
  1. Interpretation of sections 22 and 26 of the Income-tax Act, 1961 regarding the assessment of house property income in the hands of a firm or its partners.
  
  Detailed Analysis:
  
  The case involved a registered firm with both business income and house property income. The dispute arose regarding the assessment of the property income for the assessment year 1962-63. The firm claimed that the income should be assessed in the hands of the partners under section 26 of the Income-tax Act, while the department contended that it should be included in the total income of the firm under section 22. The Tribunal upheld the department's claim, leading to the reference to the High Court. However, a mistake was noted in the reference application and question framed, referring to section 28 instead of the correct section 22. The court corrected this error and proceeded to consider the correct question on its merits.
  
  The primary contention of the assessee was that the house property income should have been assessed under section 26, implying that the firm is an association of persons. The court analyzed the definitions of "person" under section 2(31) and highlighted that section 22 applies when the assessee is the owner of the house property, while section 26 applies when the assessee is an association of persons with co-ownership of the property. It was clarified that section 26 pertains to cases where the income should be included in the total income of an association of persons or assessed in the hands of its members.
  
  The counsel for the assessee relied on a Calcutta High Court decision, arguing that the principle applied to joint Hindu families should also be extended to firms. However, the court disagreed, emphasizing that section 26 does not apply to joint Hindu families, firms, or companies as owners of properties. In the present case, as the firm was the owner of the house properties, section 26 could not be invoked, and the assessment under section 22 by the department was deemed correct.
  
  Ultimately, the court answered the question in the affirmative, affirming that the income from the properties had been properly assessed in the hands of the firm under section 22 of the Income-tax Act, 1961. No costs were awarded, and a copy of the judgment was to be sent to the Tribunal as required by the Act.

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