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Showing 101 to 105 of 105 Records

• 1977 (7) TMI 5
  
  Issues Involved:
  1. Exemption under Section 4(3)(i) of the Indian Income-tax Act, 1922, for assessment years 1958-59 to 1961-62.
  2. Exemption under Section 11(1) of the Income-tax Act, 1961, for assessment years 1962-63 and 1963-64.
  3. Interpretation of "income derived from property held under trust."
  4. Impact of the amendment introducing clause 2(j) in the trust deed.
  
  Issue-wise Detailed Analysis:
  
  1. Exemption under Section 4(3)(i) of the Indian Income-tax Act, 1922, for Assessment Years 1958-59 to 1961-62:
  For the assessment years 1958-59 and 1959-60, the trust deed did not include clause 2(j), which authorized the trustees to carry on business activities. The court held that "income derived from property held under trust" must directly and substantially arise from the property held under trust. Since the trustees were not authorized to carry on business prior to the introduction of clause 2(j), the income derived from such business could not be considered as income derived from property held under trust. Therefore, the income for these years was not exempt under Section 4(3)(i) of the Indian Income-tax Act, 1922.
  
  For the assessment years 1960-61 and 1961-62, clause 2(j) was introduced, authorizing the trustees to manufacture and market products using the patents and inventions held under trust. The court held that this business activity was within the scope of the trust's objectives and thus constituted "property held under trust." Therefore, the income derived from this business was exempt under Section 4(3)(i) for these years.
  
  2. Exemption under Section 11(1) of the Income-tax Act, 1961, for Assessment Years 1962-63 and 1963-64:
  For the assessment years 1962-63 and 1963-64, the case was governed by Section 11(1) of the Income-tax Act, 1961, which is similar to Section 4(3)(i) of the Indian Income-tax Act, 1922. However, the definition of "charitable purpose" under Section 2(15) of the Income-tax Act, 1961, includes the advancement of any object of general public utility, provided it does not involve the carrying on of any activity for profit. The court held that the business of manufacturing and marketing products using the patents and inventions was an activity for profit and therefore did not qualify as a "charitable purpose" under the new definition. Consequently, the income derived from this business was not exempt under Section 11(1) for these years.
  
  3. Interpretation of "Income Derived from Property Held Under Trust":
  The court referred to the decision in J.K. Trust v. CIT [1953] 23 ITR 143, which held that income must directly and substantially arise from the property held under trust to qualify for exemption. The court emphasized that merely using a patent held under trust in a business does not make the business itself property held under trust. The business must be explicitly authorized by the trust deed to be considered as such.
  
  4. Impact of the Amendment Introducing Clause 2(j) in the Trust Deed:
  Clause 2(j) was introduced on October 22, 1958, and authorized the trustees to conduct research, develop processes and products, and manufacture and market them to raise funds for the trust's objectives. The court held that this clause allowed the business activities to be considered as property held under trust from the assessment year 1960-61 onwards. However, for the years governed by the Income-tax Act, 1961, the business activities were deemed to be for profit and thus did not qualify as charitable purposes under Section 2(15).
  
  Conclusion:
  - The claim for exemption under Section 4(3)(i) of the Indian Income-tax Act, 1922, for the assessment years 1958-59 and 1959-60 was not proper.
  - The claim for exemption under Section 4(3)(i) for the assessment years 1960-61 and 1961-62 was proper.
  - The claim for exemption under Section 11(1) of the Income-tax Act, 1961, for the assessment years 1962-63 and 1963-64 was not proper.
  - Each party will bear its own costs as both parties partially succeeded.

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• 1977 (7) TMI 4
  
  Issues Involved:
  1. Whether the sum of Rs. 29,16,000 claimed as bad debt by the assessee was admissible as a revenue loss or bad debt under the Indian Income Tax Act, 1922.
  
  Detailed Analysis:
  
  Issue 1: Admissibility of Rs. 29,16,000 as Revenue Loss or Bad Debt
  
  Background and Facts:
  The assessee, represented by Pandit Lakshmi Kant Jha, executor, was the holder of the Darbhanga Raj estate. For the assessment year 1958-59, the assessee claimed Rs. 29,16,000 as a bad debt from his money-lending business, which was disallowed by the Income Tax Officer (ITO), the Appellate Assistant Commissioner (AAC), and the Income-tax Appellate Tribunal.
  
  Key Findings by the Tribunal:
  1. The debt was originally a money-lending debt.
  2. The character of the debt and the debtor changed, making it an agricultural asset.
  3. The income from the property was agricultural income.
  4. The asset was thus an agricultural asset.
  5. The loss was a loss of an agricultural asset and outside the scope of the Income-tax Act.
  
  Arguments by the Assessee:
  The assessee's counsel, Dr. Debi Pal, argued that the Tribunal erred in holding the income from the zarpeshgi thika lease as agricultural income. He contended that the property was given as security against the loan advanced by the assessee and was income from money-lending business. He referred to several letters and documents to support this claim.
  
  Supreme Court's Previous Decision:
  The Supreme Court had earlier ruled in Maharajadhiraj Sir Kameshwar Singh v. State of Bihar [1959] 37 ITR 388 that the income from the leasehold property was agricultural income and the payment to the lessor was premium, not a loan. The Supreme Court found that the income derived from the leasehold property was not income from money-lending business but agricultural income.
  
  Tribunal's Conclusion:
  The Tribunal concluded that the property in question was agricultural property and the income derived was agricultural income. This conclusion was based on the Supreme Court's decision and the Tribunal's own findings that the property was acquired on a leasehold basis and not as a security for a loan.
  
  Assessee's Alternative Argument:
  Dr. Pal alternatively argued that even if the property was agricultural, its loss should be admissible as a bad debt. He contended that the Tribunal's assumption that agricultural property loss is not admissible under the Income-tax Act was erroneous.
  
  Tribunal's Rebuttal:
  The Tribunal noted that agricultural income is excluded from the scope of the Income-tax Act, and agricultural property could not be considered a capital asset under the Act. The Tribunal found that the property was leasehold and not security for a loan, supported by the Supreme Court's decision.
  
  Final Decision:
  The Tribunal's finding that the thika properties were not security for a loan led to the rejection of the claim for exemption of Rs. 29,16,000 as revenue loss or admissible bad debt. The question was answered in the affirmative, in favor of the department and against the assessee.
  
  Conclusion:
  The Tribunal was justified in law in not allowing the sum of Rs. 29,16,000 as revenue loss or admissible bad debts. The judgment affirmed that the loss was related to an agricultural asset, thus outside the scope of the Income-tax Act.

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• 1977 (7) TMI 3
  
  Issues Involved:
  1. Whether the assessee-corporation qualifies as an authority established for marketing of commodities under the Warehousing Corporations Act, 1962.
  2. Whether the assessee-corporation is entitled to exemption under section 10(29) of the Income Tax Act in respect of its income from letting of godowns and warehousing.
  
  Issue-wise Detailed Analysis:
  
  Issue 1: Whether the assessee-corporation qualifies as an authority established for marketing of commodities under the Warehousing Corporations Act, 1962.
  The Gujarat State Warehousing Corporation, originally established under the Agricultural Produce (Development and Warehousing) Corporations Act, 1956, is deemed to be constituted under the Warehousing Corporations Act, 1962, by virtue of section 43(2)(g) of the latter Act. The preamble of the 1962 Act specifies that it aims to provide for the incorporation and regulation of corporations for the warehousing of agricultural produce and other commodities.
  
  Section 24 of the Warehousing Corporations Act outlines the functions of the State Warehousing Corporation, which include acquiring and building godowns and warehouses, running warehouses for storage, arranging transport facilities, acting as an agent for the purchase, sale, storage, and distribution of agricultural produce and notified commodities, and carrying out other prescribed functions. The Tribunal relied on the Allahabad High Court's decision in U.P. State Warehousing Corporation v. ITO, which held that such a corporation satisfies the requirements of section 10(29) of the Income Tax Act.
  
  The term "authority" in section 10(29) is interpreted in a limited context, focusing on statutory authorities constituted under law for marketing. The historical context, including recommendations from various committees and the legislative history, supports the view that warehousing corporations were established to facilitate marketing, which includes storage and warehousing as essential elements of the marketing process.
  
  Issue 2: Whether the assessee-corporation is entitled to exemption under section 10(29) of the Income Tax Act in respect of its income from letting of godowns and warehousing.
  Section 10(29) of the Income Tax Act provides exemption for income derived from letting of godowns or warehouses for storage, processing, or facilitating the marketing of commodities, if the entity is an authority constituted under any law for the marketing of commodities. The Tribunal found that the assessee-corporation met all three conditions for this exemption: it is constituted under a law in force, it is constituted for the marketing of commodities, and the income in question is derived from letting of godowns or warehouses for storage, processing, or facilitating marketing.
  
  The Tribunal emphasized that the term "marketing" should be interpreted broadly to include all activities that enhance the value of commodities, such as storage and warehousing, which are crucial in the marketing process. This interpretation aligns with modern marketing principles and the legislative intent to encourage warehousing activities by granting tax exemptions.
  
  The Tribunal rejected the argument that the authority must engage in trading activities to qualify for the exemption, noting that such a narrow interpretation would defeat the legislative purpose. The Tribunal also dismissed the reliance on the Taxation Enquiry Committee Report, 1953-54, as outdated and not reflective of the current legislative framework.
  
  In conclusion, the Tribunal held that the assessee-corporation fulfilled all the requisites for exemption under section 10(29) and answered the reference in the affirmative, in favor of the assessee and against the revenue. The revenue was directed to pay the costs of the assessee in each reference.

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• 1977 (7) TMI 2
  
  Issues: Interpretation of section 40A(3) of the Income-tax Act, 1961 regarding deductions for cash payments exceeding Rs. 2,500 in purchasing scrap metal for resale.
  
  In this case, the appellant, an assessee-firm engaged in the wholesale business of brass and copper scrap, claimed deductions for cash payments exceeding Rs. 2,500 made during the assessment year 1970-71 for purchasing metal scrap. The revenue authorities and the Appellate Tribunal rejected the claim citing section 40A(3) of the Income-tax Act, 1961, which restricts deductions for cash payments exceeding Rs. 2,500. The Tribunal declined to refer the matter to the High Court, prompting the appellant to approach the High Court of Allahabad. The High Court dismissed the application for reference, leading to the appeal before the Supreme Court. The appellant argued that the payments for purchasing scrap metal constitute "expenditure" within the meaning of section 40A(3). The Supreme Court noted conflicting views on this matter, with various Tribunal benches holding that such payments are not expenditure, while certain High Court judgments took a contrary stance. Given the general importance of the issue and the acknowledgment that the question was raised before the Tribunal, the Supreme Court set aside the High Court's judgment and directed the High Court to seek a statement of the case from the Tribunal to decide whether the amount spent on purchasing goods for resale falls within the ambit of section 40A(3) of the Income-tax Act, 1961. The High Court was instructed to hear the parties and dispose of the reference accordingly.

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• 1977 (7) TMI 1
  

  Tribunal has set aside the penalty of ₹ 7,500 levied on the assessee - Tribunal appears to have overlooked the amendment made by Act 5 of 1964 to s. 271 of the I.T. Act, 1961. The word " deliberately ", which occurred in the unamended section, was omitted by the amendment and an Explanation was added to that section which was previously not there - Tribunal should have considered the amendment. However, reference was refused taking overall view of the case

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