|
Advanced Search Options
Case Laws
Showing 181 to 200 of 2644 Records
-
1983 (12) TMI 48
The High Court of Madras dismissed the tax case petitions regarding valuation of shares for wealth-tax assessment years 1975-76 and 1976-77. The Tribunal found the market value of the shares to be reasonable based on stock exchange quotes and company transactions, rejecting the valuation by the WTO under rule ID of the W.T. Rules.
-
1983 (12) TMI 47
Issues Involved:
1. Whether the interest attributable to the loans borrowed by the assessee-firm for the purpose of construction of Safire theatre should be allowed under the head "Business" after the theatre complex was sold and the business of exhibition of films stopped.
2. Whether the business carried on by the assessee as jewellers and in the running of the cinema theatre, restaurant, etc., are composite.
Issue-Wise Detailed Analysis:
Issue 1: Deductibility of Interest Under the Head "Business"
The primary question was whether the interest on loans borrowed for the construction of Safire theatre could be allowed as a business expenditure under the head "Business" after the theatre was sold and the film exhibition business ceased. The court noted that the assessee originally ran both a jewellery business and a film exhibition business, borrowing funds for the construction of the theatre. The interest on these borrowings was allowed as a deduction while the theatre was operational. However, after the theatre was sold and the film exhibition business ceased, the Income Tax Officer (ITO) disallowed the interest deduction, arguing that the business for which the loans were taken no longer existed.
The court held that once the business for which the loans were borrowed ceased to exist, the interest payments could not be deducted as business expenditure. The court emphasized that the deduction under Section 36(1)(iii) of the Income-tax Act, 1961, is applicable only if the borrowed capital is used for the business whose profits are being assessed. Since the theatre business was sold, the interest payments could not be considered as business expenditure for the jewellery business.
Issue 2: Composite Nature of Businesses
The second question was whether the jewellery business and the film exhibition business constituted a composite business. The court examined the Tribunal's finding that the businesses were composite based on the test of unity of control. However, the court clarified that unity of control alone is insufficient to establish a composite business. The court referred to several precedents, including CIT v. Prithvi Insurance Company Ltd. and Standard Refinery and Distillery Ltd. v. CIT, which established that interconnection, interlacing, and interdependence between the businesses are also required.
The court found that the jewellery business and the film exhibition business were not interconnected, interlaced, or interdependent. The jewellery business continued unaffected after the film exhibition business ceased, indicating that they were separate businesses. Therefore, the court concluded that the businesses were not composite.
Additional Considerations
The court also addressed an alternative contention by the Revenue that even if the businesses were considered composite, the interest payments could not be treated as business expenditure due to the diversion of borrowed funds for investment purposes. The court referred to the unreported decision in CIT v. Sujani Textiles Private Ltd., where it was held that interest on borrowed funds used for non-business purposes could not be claimed as a deduction. The court applied the same reasoning, stating that the borrowed funds were invested in the new firm that purchased the theatre, thus constituting a diversion of funds.
Conclusion
Based on the above analysis, the court answered both questions in favor of the Revenue and against the assessee. The court held that the interest payments on loans borrowed for the construction of Safire theatre could not be allowed as a business expenditure under the head "Business" after the theatre was sold and the film exhibition business ceased. Additionally, the jewellery business and the film exhibition business were not composite, as they lacked interconnection, interlacing, and interdependence. The assessee was ordered to pay the costs of the Revenue.
-
1983 (12) TMI 46
Issues:
1. Jurisdiction of the Bombay High Court to grant relief.
2. Delay in approaching the court.
3. Approval sought for both service and know-how agreements.
4. Consideration of application for approval of the know-how agreement.
Jurisdiction of the Bombay High Court:
The respondent raised a preliminary objection regarding the jurisdiction of the Bombay High Court to grant the relief claimed in the petition. However, the court found that the petition had been pending for over three years and concluded that transferring the case to New Delhi would only lead to unnecessary delays and multiplicity of litigation. Therefore, the court decided to retain jurisdiction and proceed with the case.
Delay in Approaching the Court:
The respondent argued that the petitioner had approached the court after a significant delay, as the approval for the service agreement was granted in 1976, and the petitioner only filed the petition in 1979 after the ITO declined to treat the receipts as capital receipts. Despite the delay, the court refused to dismiss the petition solely on that ground, emphasizing that delay alone should not be a reason to reject a petition, especially when the petitioner had a strong case on merits.
Approval Sought for Both Service and Know-How Agreements:
The petitioner had initially applied for approval under section 80-O of the Income Tax Act in 1973 but inadvertently sought approval only for the service agreement, not realizing the omission regarding the know-how agreement. The court acknowledged this oversight and noted that the petitioner had clearly indicated in the pro forma that approval was required for both agreements. The court held that this error should not deprive the petitioner of its right and directed the tax authority to consider the application for approval of the know-how agreement on its merits.
Consideration of Application for Approval of the Know-How Agreement:
The court ruled in favor of the petitioner, stating that the application made in 1973 should be considered as an application for approval of both the service and know-how agreements. As approval had already been granted for the service agreement, the tax authority was directed to review the application for the know-how agreement and make a decision based on the merits of the case. The court granted the petitioner's request and directed the tax authority to process the application accordingly, with costs to be borne by the petitioner.
-
1983 (12) TMI 45
The High Court of Calcutta addressed a case under the Companies (Profits) Surtax Act, 1964. The Tribunal's decision regarding the treatment of excess depreciation adjustment as part of capital was upheld based on a previous judgment. The court granted a certificate of fitness for appeal to the Supreme Court on the issue of whether excess depreciation automatically becomes a reserve or remains part of undistributed profits.
-
1983 (12) TMI 44
Issues Involved:
1. Validity of the Sahebzadi Anwar Begum Trust.
2. Inclusion of the value of the corpus of the Sahebzadi Anwar Begum Trust in the principal value of the estate.
3. Validity of the Sahebzadi Oolia Kulsum Trust.
4. Inclusion of the value of the corpus of the Sahebzadi Oolia Kulsum Trust in the principal value of the estate.
Detailed Analysis:
Issue 1: Validity of the Sahebzadi Anwar Begum Trust
The court examined whether the trust created by the deceased on March 21, 1953, known as the Sahebzadi Anwar Begum Trust, was ab initio void. The Assistant Controller of Estate Duty initially found the trust to be repugnant to Sections 13 and 14 of the Transfer of Property Act, as the trust conferred benefits from generation to generation, thus creating a perpetuity. The Appellate Controller, however, held that the trust was saved by the provisions of the Wakf Validation Act, 1913. The Appellate Tribunal confirmed this view, stating that the trust had become valid by adverse possession. The court, however, disagreed, noting that the Mussalman Wakf Validating Act, 1913, did not apply to the Hyderabad State, as established by a Division Bench in Salah v. Husain, AIR 1955 Hyd 229. Consequently, the trust was deemed invalid under Sections 13 and 14 of the Transfer of Property Act.
Issue 2: Inclusion of the Value of the Corpus of the Sahebzadi Anwar Begum Trust in the Principal Value of the Estate
The court addressed whether the value of the corpus of the Sahebzadi Anwar Begum Trust should be included in the principal value of the estate of the late Sri Osman Ali Khan Bahadur. Given that the trust was found to be void, the properties settled under the trust deed should revert to the settlor and his heirs. This legal position was supported by the Supreme Court in CED v. Usha Kumar [1980] 121 ITR 735 (SC). The court further held that the right to recover the trust properties was not barred by limitation under Article 113 of the Limitation Act, as there had been no demand from the settlor or his heirs, nor any refusal or denial by the trustees. Therefore, the value of the corpus of the trust was liable to be included in the principal value of the estate under Section 5 of the E.D. Act.
Issue 3: Validity of the Sahebzadi Oolia Kulsum Trust
Similarly, the court examined the validity of the trust created by the deceased on March 21, 1953, known as the Sahebzadi Oolia Kulsum Trust. The terms of this trust were identical to those of the Sahebzadi Anwar Begum Trust. The Assistant Controller of Estate Duty found it to be repugnant to Sections 13 and 14 of the Transfer of Property Act. The Appellate Controller and the Appellate Tribunal had previously upheld the trust's validity under the Wakf Validation Act, 1913. However, the court ruled that the Mussalman Wakf Validating Act, 1913, did not apply to the Hyderabad State, rendering the trust invalid under Sections 13 and 14 of the Transfer of Property Act.
Issue 4: Inclusion of the Value of the Corpus of the Sahebzadi Oolia Kulsum Trust in the Principal Value of the Estate
The court considered whether the value of the corpus of the Sahebzadi Oolia Kulsum Trust should be included in the principal value of the estate of the late Sri Osman Ali Khan Bahadur. As the trust was found to be void, the properties settled under the trust deed should revert to the settlor and his heirs. The court reiterated that the right to recover the trust properties was not barred by limitation under Article 113 of the Limitation Act. Consequently, the value of the corpus of the trust was liable to be included in the principal value of the estate under Section 5 of the E.D. Act.
Conclusion:
- R.C. No. 85 of 1978: The trust created by the deceased on March 21, 1953, known as Sahebzadi Anwar Begum Trust, is void ab initio.
- R.C. No. 95 of 1978: The value of the corpus of the Sahebzadi Anwar Begum Trust is liable to be included in the principal value of the estate of Sir Osman Ali Khan Bahadur.
- R.C. No. 87 of 1978: The trust created by the deceased on March 21, 1953, known as Sahebzadi Oolia Kulsum Trust, is void ab initio.
- R.C. No. 88 of 1978: The value of the corpus of the Sahebzadi Oolia Kulsum Trust is liable to be included in the principal value of the estate of late Sir Osman Ali Khan Bahadur.
There will be no order as to costs. The request for leave to appeal to the Supreme Court was refused.
-
1983 (12) TMI 43
Issues:
1. Whether the profit on the transfer of agricultural land was assessable as business income of the assessee.
2. Whether the land was held as stock-in-trade of the assessee's business.
Analysis:
The High Court of Calcutta addressed the issue of whether the profit on the transfer of agricultural land should be considered as business income of the assessee. The assessee, a partnership firm, had purchased a plot of land for agricultural operations but later sold a portion of it, making a profit. The Income Tax Officer (ITO) treated the profit as business income. The assessee contended that the land was meant for agricultural purposes but had to be sold due to political disturbances. The Appellate Authority Commissioner (AAC) upheld the ITO's decision, noting that the land was held as stock-in-trade as per the partnership deed and the balance-sheet of the firm.
Upon further appeal, the Tribunal analyzed the partnership deed, which specified dealing in immovable properties as the firm's business. The Tribunal observed that the land in question was shown under "Land" in the balance-sheet, indicating it was not a capital asset. The Tribunal concluded that whether agricultural operations were conducted was irrelevant, as the land was part of the assessee's normal trading activities. The Tribunal's finding that the land was held as stock-in-trade was considered a question of fact, supported by the evidence presented.
The High Court affirmed the Tribunal's decision, stating that no error of law was found. It emphasized that the Tribunal's conclusion regarding the land being held as stock-in-trade was based on the facts presented and not legally flawed. The Court held that the profit from the land sale constituted business income of the assessee. The judgment was delivered by Justice Suhas Chandra Sen, with Chief Justice Satish Chandra concurring.
In conclusion, the High Court upheld the Tribunal's decision that the profit from the sale of the land was assessable as business income, as the land was held as stock-in-trade of the assessee's business. The judgment highlighted the importance of factual considerations in determining the nature of income for taxation purposes, emphasizing the relevance of evidence and business activities in such assessments.
-
1983 (12) TMI 42
Issues Involved:
1. Justification for reopening the assessment under section 147(b) of the Income-tax Act.
2. Tribunal's findings based on presumption without appreciating documentary evidence and the direction to rehear the appeal.
Detailed Analysis:
Issue 1: Justification for Reopening the Assessment under Section 147(b)
The primary issue is whether the Tribunal was justified in holding that there was information to justify the reopening of the assessment under section 147(b). The assessee, a firm exporting lungies, claimed to have imported dyes and chemicals using incentive import licenses and sold them to three parties. The original assessment for the year 1966-67 was completed based on this claim. However, for the year 1967-68, the ITO added the income of another firm, Sivagami Textiles, to the assessee's income, asserting it was a benami concern of the assessee.
The reopening of the assessment for 1966-67 was based on the ITO's finding that the sales to the three parties were bogus transactions, as the parties were found fictitious upon enquiry. The assessee failed to produce these parties for examination, leading the ITO to conclude that the assessee sold the import licenses at a premium. This conclusion was drawn from the prices quoted in "Economic Times" and "Viyapar."
The Tribunal upheld the ITO's power to reopen the assessment under section 147(b), stating that the ITO acted on sufficient materials. The Tribunal found that the ITO's subsequent enquiries revealed that the sales were fictitious, and the assessee's failure to produce the purchasers supported the conclusion that the transactions were not genuine. The Tribunal concluded that the assessee must have sold the import licenses at the prevailing market rate, justifying the reassessment.
The court agreed with the Tribunal, noting that the ITO had reasonable grounds to believe that income had escaped assessment based on the new information obtained after the original assessment. The materials gathered indicated that Sivagami Textiles was a benami concern and that the sales were fictitious, leading to the inference that the assessee sold the import licenses at a premium. Thus, the initiation of proceedings under section 147(b) was justified.
Issue 2: Tribunal's Findings Based on Presumption and Direction to Rehear the Appeal
The second issue concerns whether the Tribunal's findings were based on presumption without appreciating the documentary evidence and whether the direction to rehear the appeal was warranted. The Tribunal directed the AAC to rehear the appeal to ascertain whether the amounts invested by Navaneethammal in Sivagami Textiles came from her own funds or from the joint family funds. This determination was crucial to decide if Navaneethammal was a partner benami for the joint family or in her individual capacity.
The court found no error in the Tribunal's direction to remand the case to the AAC for a specific finding on this matter. The Tribunal's decision to remand was based on the need for a clear determination of the source of Navaneethammal's investment, which was material to the issue of whether Sivagami Textiles was a benami concern.
Conclusion:
Both questions were answered against the assessee. The court upheld the Tribunal's decision that the ITO had sufficient material to justify reopening the assessment under section 147(b) and found no error in the Tribunal's direction to rehear the appeal regarding the constitution of Sivagami Textiles. The assessee was ordered to pay the costs of the Revenue.
-
1983 (12) TMI 41
Issues:
Calculation of profit for a building contractor based on materials supplied by a government department.
Analysis:
The judgment pertains to a reference made by the Commissioner of Income-tax regarding the inclusion of the cost of materials supplied by the M.E.S. department in the gross receipts of a building contractor for profit calculation. The contractor executed works on behalf of M.E.S., and the Income Tax Officer applied a net profit rate of 12%, later reduced to 10% by the Appellate Authority. The Tribunal upheld the 10% profit rate and excluded the value of materials supplied by M.E.S. from the turnover calculation, as no profit was deemed to accrue from those materials. The Commissioner sought a reference to the High Court, which was granted.
The High Court referenced decisions from various High Courts and a Full Bench of the Andhra Pradesh High Court, where it was held that no profit was involved in materials supplied by government departments for contract execution. The Punjab and Haryana High Court, however, held a contrary view. The Supreme Court in a related case clarified that materials supplied by the government department for works contracts do not involve any element of profit for the contractor. Therefore, the turnover should be determined excluding the cost of such materials.
Based on the Supreme Court's principles, the High Court held that the value of materials supplied by the government department to the contractor should be excluded while determining the turnover. The legal position was clarified by the Supreme Court, and the question was answered in favor of the assessee, directing the exclusion of material costs from turnover calculation. Each party was ordered to bear their own costs in the reference.
In conclusion, the judgment establishes that the value of materials supplied by a government department to a contractor should not be included in turnover calculations for profit determination, as clarified by the Supreme Court's principles.
-
1983 (12) TMI 40
Issues:
Assessment of additional super-tax under section 104 of the Income Tax Act, 1961 based on distributable surplus and rejection of explanation for hundi loans.
Analysis:
For the assessment year 1962-63, the assessee initially reported an income of Rs. 10,790, but the assessment was completed on a total income of Rs. 1,90,293. Subsequently, the Income Tax Officer (ITO) raised a demand of additional super-tax of Rs. 34,342 under section 104 of the Income Tax Act, 1961, based on a distributable surplus of Rs. 92,545. The Appellate Assistant Commissioner (AAC) upheld the ITO's order, leading the assessee to appeal to the Tribunal. The Tribunal, considering the penalty appeal and rejection of the explanation for hundi loans, held that the provisions of section 104 were not applicable. The Tribunal emphasized that the Department could not prove the charge of concealment regarding the hundi loans, leading to the dismissal of the penalty order, and consequently, the application of section 104 was also deemed inappropriate.
The Tribunal further noted that the addition of hundi loans as income was based on the rejection of the assessee's explanation, which did not establish that the loans represented actual income earned by the assessee. The Tribunal, citing relevant case law, concluded that the addition under section 68 of the Income Tax Act, 1961, was artificial or notional income and thus not subject to section 104. Additionally, the Tribunal referred to a decision regarding the failure to prove the genuineness of loan transactions, emphasizing that such failure does not automatically imply availability for distribution as dividend, thus not attracting section 104.
The High Court, in its judgment, agreed with the Tribunal's findings, emphasizing that the addition of income based on rejection of the explanation for hundi loans was not genuine commercial profit and therefore did not fall under the purview of section 104. The Court also referred to relevant case law to support its decision, highlighting that failure to prove the genuineness of loan transactions does not automatically render the amounts available for computing distributable surplus under section 104. The Court reserved its opinion on whether section 104 is a penal provision akin to section 271(1)(c) and ultimately ruled in favor of the assessee, holding that the provisions of section 104 were not applicable in the present case.
In conclusion, the High Court's judgment upheld the Tribunal's decision, emphasizing that the addition of notional income and failure to prove the genuineness of loan transactions did not warrant the application of section 104 of the Income Tax Act, 1961. The Court ruled in favor of the assessee, highlighting that the provisions of section 104 were not applicable based on the circumstances of the case.
-
1983 (12) TMI 39
Issues Involved:
1. Applicability of Section 12 of the Estate Duty Act, 1953.
2. Applicability of Section 10 of the Estate Duty Act, 1953.
3. Interpretation of "settlement" under Section 12.
4. Reservation of interest by the settlor.
5. Surrender of the reserved interest.
Detailed Analysis:
1. Applicability of Section 12 of the Estate Duty Act, 1953:
The court examined whether the trust property of Rs. 13,57,205 should be included in the estate duty assessment under Section 12 of the Estate Duty Act, 1953. The court concluded that the term "settlement" in Section 12 includes trusts. The court stated, "the words 'any settlement' used in s. 12, without further elucidation, will be comprehensive enough to take in a 'trust' as well." The court rejected the argument that the term "settlement" should exclude trusts, noting that the statutory language and context support a broader interpretation.
2. Applicability of Section 10 of the Estate Duty Act, 1953:
The court also considered whether Section 10 of the Act was applicable. The Assistant Controller and the Appellate Controller had invoked Section 10, arguing that the settlor was not entirely excluded from the trust's benefits. However, the court found it unnecessary to address this aspect in detail, as it had already determined that Section 12 was applicable. The court stated, "it is unnecessary to address ourselves on this aspect in view of our adjudication that the case is covered by s. 12 of the Act."
3. Interpretation of "settlement" under Section 12:
The court analyzed the definition of "settlement" and concluded that it includes trusts. The court noted that terms like "settlement," "disposition," "trust," and "dedication" are used interchangeably in the Act. The court stated, "the words settlement, disposition, trust, dedication and arrangement, employed at various places in the Act, have been used very loosely and not with any amount of deliberateness as to their scope, meaning and effect." The court emphasized that the term "settlement" should be interpreted broadly to include trusts.
4. Reservation of interest by the settlor:
The court examined whether the settlor had reserved any interest in the trust property. The court found that the settlor had reserved an interest for life, as he had the right to require the trustees to defray his expenses for pilgrimage and other purposes from both the income and corpus of the trust. The court stated, "the settlor, in his absolute discretion, may from time to time require 'out of the income as well as the corpus of the trust fund' in such manner and to such extent as the settlor may from time to time direct." This reservation of interest was deemed sufficient to attract Section 12.
5. Surrender of the reserved interest:
The court considered whether the settlor had surrendered the reserved interest two years before his death, as required by the first proviso to Section 12(1). The court found no evidence of such surrender and rejected the argument of implied surrender. The court stated, "the proviso positively contemplates that the reservation so made must by certain means be surrendered two years before his death. Admittedly, there is no such surrender by any instrument, much less two years before the settlor's death." The court concluded that the property should be deemed to pass on the settlor's death.
Conclusion:
The court answered the question in the affirmative and against the assessee, concluding that the trust property should be included in the estate duty assessment under Section 12 of the Estate Duty Act, 1953. The court's key findings were:
(i) The term "settlement" in Section 12 includes trusts.
(ii) The settlor reserved an interest in the trust property for life.
(iii) "Life interest in property" is not synonymous with "interest in property for life."
(iv) The settlor did not surrender the reserved interest two years before his death, and thus the property should be deemed to pass on his death.
-
1983 (12) TMI 38
Issues:
Reopening of assessments under Wealth Tax Act - Failure to disclose material facts - Jurisdiction of the WTO under section 17(1)(a) of the Act.
Detailed Analysis:
The petitioner owned agricultural land and BIR in two villages and declared their value for wealth-tax assessment. The valuation was accepted by the Department for multiple years. Subsequently, the petitioner sold portions of the land in separate transactions. The Department accepted the valuations made by the petitioner based on the approved valuer's report. However, notices were later issued for reopening assessments for certain years under section 17 of the Wealth Tax Act, alleging failure to disclose material facts fully and truly.
The Department contended that there was a failure on the petitioner's part in disclosing the true value of the agricultural land, leading to underassessment. The WTO issued notices based on the assertion that the petitioner had omitted crucial information, resulting in undervaluation of the assets. The Department submitted that the petitioner's initial valuations were too low due to the alleged failure to disclose material facts completely.
In a similar case considered by a Division Bench, it was held that if the assessee had provided all primary facts regarding the valuation of assets, the Revenue cannot reopen assessments under section 17(1)(a) of the Act. The court emphasized that the Department should have sought independent valuation or market evidence if they doubted the correctness of the declared value. Citing previous judgments, the court reiterated that failure to conduct a proper investigation does not empower the Revenue to reopen final assessments.
The court found that the petitioner had indeed disclosed all primary facts regarding the valuation of the agricultural land to the WTO for the relevant assessment years. As a result, the WTO's decision to reopen the assessments was deemed unjustified. Relying on the precedent, the court held that since the petitioner had fulfilled the obligation of presenting all necessary information, the WTO had no grounds to invoke section 17(1)(a) for reopening the assessments.
Consequently, the petition was allowed, and the notices issued by the WTO for reopening assessments were quashed. The parties were directed to bear their own costs, and any outstanding security deposit was to be refunded to the petitioner.
-
1983 (12) TMI 37
Issues Involved:
1. Whether the settlor had created two separate trusts in favor of the two beneficiaries.
2. Whether a single assessment can be made on the trustees.
3. Whether capital gains tax is exigible on the profit arising from the sale of jewelry.
Issue-wise Detailed Analysis:
1. Separate Trusts for Beneficiaries:
The court examined whether the trust deed created two separate trusts for the beneficiaries, Prince Mukkaram Jah and Prince Muffakkam Jah. The trust deed, despite being a single document, contained distinct provisions for each beneficiary. The Appellate Tribunal concluded that there were indeed two separate trusts, each favoring one grandson. The High Court affirmed this conclusion, stating, "Thus, it is clear that the two trusts are created by the late Nizam, each in favor of each grandson named specifically though they are incorporated in one and the same document." Consequently, the court held that separate assessments should be made for each trust, answering the first two questions in the affirmative.
2. Single Assessment on Trustees:
Given the determination that there were two separate trusts, the court addressed whether a single assessment could be made on the trustees. The Appellate Tribunal had ruled that separate assessments were necessary, and the High Court agreed, stating, "If that be so, there should be two assessments but not a single assessment and the Appellate Tribunal was, therefore, justified in giving such a finding." Therefore, the court affirmed that a single assessment could not be made on the trustees.
3. Capital Gains Tax on Jewelry Sale:
The court then examined whether the profit from the sale of jewelry was subject to capital gains tax. The jewelry was sold in 1971, and the assessment year was 1972-73. The trustees argued that the jewelry was personal effects and thus not a capital asset under Section 2(14)(ii) of the I.T. Act, 1961. However, the court noted that the jewelry was not for daily use but for special occasions, and thus did not qualify as personal effects. The court cited the Supreme Court's decision in Maharaja Rana Hemant Singhji v. CIT, emphasizing that personal effects must be "intimately and commonly used by the assessee." The court concluded, "The jewellery in question, which is intended to be used by the beneficiaries on wedding day and other ceremonial occasions... does not come under personal effects within the definition of s. 2(14)(ii) of the Act."
Assessment Under Section 164:
The court further addressed whether the assessment should be made under Section 161 or Section 164 of the I.T. Act. Since the beneficiaries were only entitled to the interest from the sale proceeds and not the corpus itself, the court determined that the trustees did not receive the corpus on behalf of the beneficiaries. Thus, the assessment should be made under Section 164, which applies when the income is not specifically receivable on behalf of or for the benefit of the beneficiaries. The court stated, "As per the terms of the trust deed, the immediate beneficiaries are not entitled to the sale proceeds... they are entitled only to the interest out of it during their lifetime."
Conclusion:
The court answered the first two questions in the affirmative, confirming that there were two separate trusts and that separate assessments should be made. The third question was answered in the negative, holding that the capital gains from the jewelry sale were taxable and that the assessment should be made under Section 164 of the I.T. Act. The court concluded, "Our answers to questions Nos. 1 and 2 are in the affirmative, i.e., in favor of the assessees and against the Revenue. Our answers to question No. 3... are in the negative, i.e., in favor of the Revenue and against the assessees." The request for a certificate to appeal to the Supreme Court was denied.
-
1983 (12) TMI 36
Issues Involved:
1. Whether the expenditure of Rs. 50,000 towards advertisements in souvenirs brought out by the Congress Party should be allowed as an allowable expenditure.
2. Whether the expenditure was a disguised donation to a political party.
3. Whether the advertisements failed to serve their purpose and thus should not be allowed as a deduction.
Issue-Wise Detailed Analysis:
1. Allowability of Expenditure:
The primary issue was whether the expenditure of Rs. 50,000 incurred by the assessee, a private limited company engaged in financing business, towards advertisements in souvenirs brought out by the Congress Party at various districts outside Tamil Nadu, should be allowed as an allowable expenditure. The Income Tax Officer (ITO) initially disallowed the expenditure, considering it more of a donation rather than a business expense. However, on appeal, the Appellate Assistant Commissioner (AAC) allowed Rs. 25,000 as an allowable expenditure and disallowed the remaining Rs. 25,000. The Tribunal, upon further appeal, allowed the entire expenditure, reasoning that the assessee's business could potentially extend beyond Tamil Nadu, and the advertisements could benefit the business.
2. Disguised Donation to a Political Party:
The Revenue contended that the expenditure was essentially a donation to the Congress Party, disguised as advertisement expenses. They argued that such payments to a political party cannot be treated as allowable expenditure. However, the court observed that the Revenue did not take this specific stand before the authorities or the Tribunal. The court held that merely because the advertisements were published in souvenirs released by a political party on the eve of elections, it does not transform the expenditure into a donation. The court emphasized that the advertisements were indeed released and published, and the timing or the publisher being a political party does not change the nature of the expenditure.
3. Effectiveness of Advertisements:
The Revenue also argued that the advertisements in the souvenirs did not reach a cross-section of the community and thus failed as advertisements. The court, however, noted that the effectiveness of an advertisement is not the criterion for allowability of the expenditure. Advertisements are a recognized medium of publicity, and even if they do not bring immediate or direct benefits, they can still facilitate business indirectly. The court highlighted that the purpose of advertisements is to establish contact with potential customers, and even if a large section of the community did not see the advertisements, it does not negate the business purpose behind them.
Conclusion:
The court concluded that the expenditure incurred by the assessee was for commercial expediency and aimed at promoting its business. The advertisements, even if published in souvenirs by a political party, were intended to extend the business beyond Tamil Nadu. The court also referred to the Board Circular No. 200 dated June 28, 1976, which stated that no distinction should be made between expenditures on advertisements in souvenirs and other types of advertisements, and such expenditures should be allowed if the conditions under rule 6B of the I.T. Rules, 1962, are fulfilled. The court affirmed the Tribunal's decision to allow the entire expenditure of Rs. 50,000 as an allowable deduction under section 37(1) of the I.T. Act, 1961, and answered the question in the affirmative, against the Revenue.
Costs:
The assessee was entitled to the costs of the reference, with counsel's fee set at Rs. 500.
-
1983 (12) TMI 35
Issues involved: Impugning notice for recovery of tax under various sections of the I.T. Act, 1961 due to alleged lack of service of demand notices u/s 156.
Summary:
The petitioner challenged a notice for the recovery of tax under various sections of the I.T. Act, 1961, on the grounds of alleged lack of service of demand notices as required u/s 156. The respondent authorities contended that the petitioner was duly served with all the demand notices for the relevant years. The notices were sent through registered post and other methods, with detailed records of delivery attempts provided. The petitioner denied receiving the notices, shifting the burden of proof to the authorities.
The court noted that as per s. 282 of the Act, notices could be served by post or as per the Code of Civil Procedure. The petitioner's claim of non-receipt of notices was deemed rebuttable, requiring the authorities to prove due service. The court found that the authorities' detailed methods of sending notices were not disputed by the petitioner. Refusal to accept registered envelopes does not negate service, as per legal precedents.
The court rejected the petitioner's claim of non-receipt of notices, citing lack of evidence or reasons for non-delivery. The petitioner's delayed response to tax demands raised questions about his awareness and intentions regarding tax payments. Despite being aware of the demands, the petitioner did not appeal or dispute them until filing the petition. The court concluded that the petitioner was properly served with the notices, upholding the authorities' actions for tax recovery. The petition was dismissed with costs.
-
1983 (12) TMI 34
Issues:
1. Jurisdictional validity of proceedings initiated under section 148 of the Income Tax Act.
2. Application of section 10(6)(vii) of the Income Tax Act to the case.
3. Impact of circular dated May 8, 1977, issued by the CBDT on assessments.
4. Reopening of assessment based on information from the audit department.
Analysis:
The judgment delivered by Justice Pendse of the Bombay High Court pertains to a case involving the jurisdictional validity of proceedings initiated under section 148 of the Income Tax Act. The petitioners, a German national and a company incorporated under the Companies Act, challenged the legality of the action taken by the Income Tax Officer (ITO) in reassessing the income for the assessment years 1975-76 and 1976-77. The petitioners contended that the initiation of proceedings under section 148 was without jurisdiction as the conditions precedent for exercising such jurisdiction did not exist. The notice under section 148 did not provide any grounds or reasons for the reassessment, which was deemed erroneous by the petitioners' counsel.
The respondents, represented by the First Income-tax Officer, argued that the provisions of section 10(6)(vii) of the Income Tax Act were wrongly applied to the case of the petitioner. They claimed that approval from the Government of India should have been obtained before the first day of October of the relevant assessment year for the provisions to be applicable. Additionally, it was contended that the ITO who conducted the assessments was unaware of a circular dated May 8, 1977, issued by the CBDT, which impacted the validity of the assessments.
The court considered the submissions of both parties and referred to the decision of the Supreme Court in Indian and Eastern Newspaper Society v. CIT [1979] 119 ITR 996. The Supreme Court's ruling emphasized that the opinion of an internal audit party of the Income-tax Department on a point of law does not constitute "information" for the purpose of reopening assessments under section 147(b) of the Income Tax Act. Based on this precedent, the court concluded that the ITO was in error in initiating proceedings for reassessment based on information from the audit department and the lack of awareness of the circular issued by the CBDT.
In light of the above analysis, Justice Pendse held that the initiation of proceedings by the respondent ITO under section 148 was entirely without jurisdiction. Consequently, the court ruled in favor of the petitioners, quashing the action of the ITO and making the rule absolute. No costs were awarded in the matter.
-
1983 (12) TMI 33
Issues involved: Assessment of deductions under section 80J of the Income Tax Act, 1961 and validity of notices issued u/s 148 for reopening completed assessments.
Assessment of deductions under section 80J:
The petitioner, a private limited company engaged in fabrication of chemical equipments, claimed deductions under s. 80J of the Act for certain assessment years. Initially, deductions were not granted by the Income Tax Officer (ITO) for the assessment year 1974-75 due to liabilities exceeding assets. However, after appeals, the Tribunal directed the ITO to allow the deductions based on capital without deducting liabilities. Subsequently, deductions were allowed for the assessment years 1975-76 and 1976-77 as well. The ITO later issued notices for reopening assessments, alleging that income had escaped assessment. The petitioner challenged these notices, arguing that the ITO did not provide reasons as required u/s 148. The court held that the power to issue notice under s. 148 cannot be exercised without proper satisfaction that income has escaped assessment due to the assessee's failure to disclose material facts. As the ITO failed to provide reasons or file an affidavit, the notices were deemed invalid.
Validity of notices issued u/s 148 for reopening assessments:
The ITO decided to exercise powers under s. 148 after finding that relief under s. 80J was wrongly allowed based on inaccurate particulars provided by the assessee. However, it was revealed that the decision to issue notices was merely due to a change of opinion, which is not a valid reason for invoking s. 148. The court emphasized that mere change of opinion does not empower the ITO to reopen assessments u/s 148. As the initiation of proceedings by the ITO was found to be without jurisdiction, the notices were quashed. The court ruled in favor of the petitioner, making the rule absolute and no costs were awarded in the matter.
-
1983 (12) TMI 32
Issues:
1. Entitlement to higher development rebate under section 33(1)(B)(i)(b) of the Income Tax Act.
2. Determining if plant and machinery installed by the assessee was for the purpose of business of construction of ships.
Analysis:
The assessee, a firm engaged in construction of building docks and repairing docks, claimed higher development rebate under section 33(1)(B)(i)(b) of the Income Tax Act for the assessment year 1975-76. The claim was based on the installation and use of machinery for the construction, manufacture, and production of ships, listed in the Fifth Schedule. However, the Income Tax Officer (ITO) rejected the claim, stating that the machinery was not used for ship manufacture, as the production was done by others. The Commissioner of Income-tax (Appeals) upheld the ITO's decision. On further appeal, the Tribunal ruled that the assessee was not entitled to the higher development rebate as it was engaged in dockyard construction, not ship manufacture. The Tribunal's decision was based on the requirement that the plant and machinery must be used for the manufacture or production of items in the Fifth Schedule to claim the rebate.
The High Court affirmed the Tribunal's decision, stating that the repair or construction of a shipyard does not constitute ship manufacture. Even if the plant and machinery were used in shipyard construction, the crucial factor was whether they were used for manufacturing or producing items in the Fifth Schedule. The court rejected the argument that using items from the Fifth Schedule in dockyard construction would qualify for the rebate, emphasizing that the rebate is only applicable if the machinery is used for manufacturing or producing items from the Fifth Schedule. Therefore, the Tribunal's decision aligned with the provisions of section 33(1)(B)(i)(b) of the Income Tax Act, and the court dismissed the petition without costs.
-
1983 (12) TMI 31
Issues Involved:
1. Ownership and entitlement to depreciation of the building by the partnership firm.
2. Assessment of rental income under s. 22 of the I.T. Act.
3. Leviability of penalty u/s 271(1)(c) of the I.T. Act for non-inclusion of rental income in revised returns.
Summary:
Issue 1: Ownership and Entitlement to Depreciation
The primary question was whether the building at 71/1, Najafgarh Road, New Delhi, became the property of the partnership firm and if the firm was entitled to depreciation on the building. The Tribunal initially disallowed depreciation for the assessment years 1963-64 and 1964-65, questioning the genuineness of an agreement dated November 9, 1962, which stated that the property was pooled with the partnership assets. However, for the assessment year 1965-66, the Tribunal allowed depreciation, noting that the firm treated the property as its own and incorporated its value in the books. The High Court held that the property was indeed transferred to the partnership firm from November 8, 1960, and allowed depreciation for the assessment year 1965-66 onwards.
Issue 2: Assessment of Rental Income
For the assessment year 1965-66, the question was whether Arjun Singh was liable to be assessed on the rental income u/s 22 of the I.T. Act. The Tribunal, following its decision that the property had been transferred to the firm, held that Arjun Singh was not liable for the rental income. The High Court affirmed this, stating that the property was owned by the firm, and thus, Arjun Singh was not assessable for the rental income.
Issue 3: Leviability of Penalty u/s 271(1)(c)
The issue was whether the penalty of Rs. 7,500 levied u/s 271(1)(c) on Arjun Singh for non-inclusion of rental income in the revised returns for the assessment year 1964-65 was justified. The Tribunal deleted the penalty, accepting Arjun Singh's plea of a bona fide belief that he was not entitled to rental income from the firm. The High Court upheld this decision, noting that the firm was found to be the owner of the property from November 8, 1960, and thus, Arjun Singh was not liable for the penalty.
Conclusion:
The High Court ruled in favor of the assessee on all issues, confirming that the partnership firm was the owner of the property and entitled to depreciation, Arjun Singh was not assessable for the rental income, and the penalty u/s 271(1)(c) was not leviable.
-
1983 (12) TMI 30
Issues:
1. Validity of the order passed under section 141A of the Income Tax Act, 1961 determining income and demanding tax.
2. Authority of the Income Tax Officer to make adjustments and demand tax under section 141A.
Analysis:
The judgment by the High Court of Bombay involved a case where a public limited company, the petitioner, challenged an order passed by the Income Tax Officer (ITO) under section 141A of the Income Tax Act, 1961. The petitioner had paid advance tax and filed a return of income for the assessment year 1978-79, claiming a refund. The ITO, however, determined an income different from the petitioner's claim by disallowing a deduction for purchase tax. This led to a demand for additional tax from the petitioner, which was contested through a writ petition under article 226 of the Constitution of India.
The key argument raised by the petitioner was that the ITO exceeded his authority by demanding tax through the order passed under section 141A. The court examined the relevant provisions of section 141A, which empower the ITO to make provisional assessments for refundable sums based on the return filed by the assessee. The court highlighted that the ITO's power under this section is limited to making adjustments to the income declared in the return and granting refunds, not determining and demanding tax. Therefore, the court found the order passed by the ITO, demanding tax from the petitioner, to be without jurisdiction and invalid.
Consequently, the High Court ruled in favor of the petitioner, quashing the impugned order passed by the ITO. The court held that the order was not in accordance with the provisions of section 141A and, therefore, could not be sustained. As a result, the petition was allowed, and the rule was made absolute, with no order as to costs.
In conclusion, the judgment clarified the scope of authority of the ITO under section 141A of the Income Tax Act, emphasizing that the ITO's power is limited to making adjustments for refunds and not for determining or demanding tax. The ruling provided a significant interpretation of the statutory provisions, ensuring that the actions of tax authorities are within the bounds of the law.
-
1983 (12) TMI 29
Issues Involved:
1. Year of chargeability of capital gains in case of compulsory acquisition.
2. Consideration of enhanced compensation in the computation of capital gains.
Summary:
Issue 1: Year of Chargeability in Case of Compulsory Acquisition
The court examined the year of chargeability for capital gains arising from compulsory acquisition u/s 45 of the Income-tax Act, 1961. The relevant date for chargeability is when the transfer of the title takes place, as per the statutory provisions of the Land Acquisition Act, 1894. The court concluded that the transfer is effected when the possession of the land is taken by the Collector, which in this case occurred before March 31, 1966. Therefore, capital gains are assessable in the year in which the transfer took place, even if the compensation is determined or enhanced later by the court.
Issue 2: Consideration of Enhanced Compensation in the Computation of Capital Gains
The court addressed whether the enhanced compensation received by the assessees pursuant to the order of the District Judge should be included in the computation of capital gains. The court held that the right to receive enhanced compensation arises only when it is judicially determined and becomes payable. Since the enhanced compensation was still under appeal and not final, it could not be considered as accrued income. The court noted that the enhanced compensation would accrue only when the court's decision becomes final. The newly inserted s. 155(7A) of the Act allows for recomputation of capital gains when compensation is enhanced by the court, indicating that the enhanced amount accrues only upon final determination.
Conclusion:
The court answered the first question in the affirmative, holding that capital gains are assessable in the year of transfer. The second question was answered in the negative, stating that the enhanced compensation should not be included in the computation of capital gains until it is finally determined by the court. Each party was ordered to bear their own costs.
............
|
9911796707
