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1991 (12) TMI 105
Issues Involved:
1. Disallowance of deduction claimed under section 80J.
2. Levy of tax at a higher rate despite being an industrial undertaking.
3. Disallowance of weighted deduction under section 35B.
4. Disallowance of relief under section 80HH.
5. Disallowance of travelling and vehicle running expenses.
6. Disallowance of various expenses at different sites.
7. Entitlement to investment allowance on new plant and machinery.
8. Higher rate of depreciation on steel shuttering equipment.
Issue-wise Detailed Analysis:
1. Disallowance of Deduction Claimed Under Section 80J:
The Income-tax Officer (ITO) disallowed the deduction under section 80J, stating that the assessee was not an industrial undertaking engaged in the manufacture or production of any article or thing. The CIT (Appeals) upheld this view, emphasizing that the mere use of concrete mixers did not qualify as processing goods. The Tribunal, however, found that the assessee was indeed engaged in the manufacture and processing of various materials at different sites, such as steel supports and concrete columns, which qualified it as an industrial undertaking entitled to the deduction under section 80J.
2. Levy of Tax at a Higher Rate Despite Being an Industrial Undertaking:
The ITO levied a higher tax rate of 65%, arguing that the assessee was not an industrial company. The CIT (Appeals) agreed, stating that the assessee did not engage in the manufacturing or processing of goods. The Tribunal, however, concluded that the assessee was mainly engaged in the manufacture or processing of goods, thus qualifying it as an industrial company entitled to a lower tax rate.
3. Disallowance of Weighted Deduction Under Section 35B:
The ITO disallowed the weighted deduction under section 35B, reasoning that the assessee was not an exporter of goods. The CIT (Appeals) upheld this disallowance. The Tribunal, however, found that the expenses incurred in Bhutan for maintaining branch offices and travelling were for the promotion of sale of services, thus qualifying for the weighted deduction under section 35B.
4. Disallowance of Relief Under Section 80HH:
The ITO disallowed the relief under section 80HH, stating that the assessee was not engaged in the manufacture or production of any article or thing. The CIT (Appeals) confirmed this view. The Tribunal, however, found that the assessee was an industrial undertaking engaged in manufacturing various articles, qualifying it for relief under section 80HH.
5. Disallowance of Travelling and Vehicle Running Expenses:
The ITO disallowed a portion of the travelling and vehicle running expenses, estimating personal use by directors. The CIT (Appeals) upheld this disallowance. The Tribunal directed the ITO to allow the entire claim, noting that the directors owned personal cars and no disallowance was made in subsequent years.
6. Disallowance of Various Expenses at Different Sites:
The ITO disallowed expenses incurred at the Rammam Hydel Project and for food and refreshments at the Kerala Minerals and Metals Works site, treating them as non-business expenses. The CIT (Appeals) upheld these disallowances. The Tribunal allowed the claims, noting that the expenses were incurred for business purposes.
7. Entitlement to Investment Allowance on New Plant and Machinery:
The ITO disallowed the investment allowance, arguing that the assessee was not an industrial undertaking. The CIT (Appeals) allowed the claim, stating that the assessee was engaged in construction and manufacturing activities. The Tribunal upheld the CIT (Appeals) decision, confirming the assessee's entitlement to the investment allowance.
8. Higher Rate of Depreciation on Steel Shuttering Equipment:
The ITO allowed only 10% depreciation on steel shuttering equipment. The CIT (Appeals) allowed a higher rate of 15%, treating it as building contractor's machinery. The Tribunal upheld the CIT (Appeals) decision, agreeing with the higher depreciation rate.
Separate Judgment by Accountant Member:
The Accountant Member disagreed with the conclusions about the assessee's claims under sections 80J and 80HH, arguing that the activities did not constitute the manufacture or production of articles or things. He emphasized that the items fabricated were intermediary products integral to the construction work and not independent articles. The Third Member agreed with this view, concluding that the assessee had not manufactured articles or things independent of the main contract to claim benefits under sections 80J and 80HH.
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1991 (12) TMI 104
Issues Involved:
1. Legality of partnership firm registration when one business is illegal.
2. Implications of a partner bringing a personal licence into the firm.
3. Prohibition of licence transfer under the Abkari Act.
4. Applicability of the Kerala High Court decision in CIT v. Union Tobacco Co. to the Abkari Act.
Detailed Analysis:
Issue 1: Legality of Partnership Firm Registration When One Business is Illegal
The Tribunal considered whether a partnership firm could be denied registration if one of its businesses is deemed illegal. The Tribunal noted that the firm in question, M/s. Raveendra Engineering Construction Company, had been granted registration for the earlier assessment year 1980-81. The firm had carried on Abkari Contracts business based on a licence obtained by one of its partners. The Tribunal referenced the Andhra Pradesh High Court decision in CIT v. Three Aces, which held that even if one activity of a firm is illegal, it does not render the entire firm illegal or disentitle it to registration under the Income-tax Act. Therefore, the Tribunal concluded that the firm was entitled to registration despite one of its businesses being potentially illegal.
Issue 2: Implications of a Partner Bringing a Personal Licence into the Firm
The Tribunal examined whether a partner bringing a personal licence into the firm constitutes a transfer of that licence to the firm. The Tribunal found no document or account entry indicating that the licence was transferred to the firm as a capital contribution. It was determined that the firm merely provided funds to the partner who held the licence and assisted in the business, sharing the profits. This arrangement was deemed valid by the Andhra Pradesh High Court in Uppala Rameswar Rao & Co.'s case, and the Supreme Court had refused to grant special leave petition against that decision. Thus, the Tribunal concluded that there was no transfer of the licence to the firm.
Issue 3: Prohibition of Licence Transfer Under the Abkari Act
The Tribunal considered whether such a transfer is prohibited under the Abkari Act. Rule 6(22) of the Kerala Abkari Shops (Disposal in Auction) Rules, 1974, prohibits the sale or transfer of a licence without written consent. However, the Tribunal noted that the licence of the assessee was not cancelled for any violation of the rules, and there was no penalty provision for transferring the licence without permission under the Kerala Abkari Act. The Tribunal contrasted this with the Rajasthan High Court decision in Motilal Chunnilal's case, where the Rajasthan Excise Law rendered such a transfer punishable. The Tribunal concluded that the Kerala Abkari Act did not treat the transfer as a punishable offence, making the agreement valid.
Issue 4: Applicability of the Kerala High Court Decision in CIT v. Union Tobacco Co. to the Abkari Act
The Tribunal evaluated whether the decision in CIT v. Union Tobacco Co. regarding the Cochin Tobacco Act applied to the Abkari Act. The Tribunal distinguished the provisions of the Cochin Tobacco Act from the Abkari Act, noting that the former treated the transfer of a licence as forbidden and void. In contrast, the Abkari Act did not have such stringent provisions. The Tribunal also referenced the Supreme Court decision in Jer & Co.'s case, which held that a partnership formed to exploit a licence did not amount to a transfer of the licence in violation of the rules. Consequently, the Tribunal found that the Kerala High Court decision in Union Tobacco Co.'s case did not apply to the Abkari Act.
Conclusion:
The Tribunal confirmed the order of the Appellate Assistant Commissioner, directing the Income-tax Officer to grant registration to the assessee firm. The Tribunal answered the referred questions in the negative and dismissed the appeal.
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1991 (12) TMI 103
Issues Involved
1. Determination of whether the sale was by individual partners or by the firm.
2. Taxability of the transaction under Section 41(2) of the IT Act.
3. Applicability of capital gains tax.
4. Nature of the sale: whether it was a slump sale or a sale of individual assets.
5. Treatment of sale proceeds and outstanding liabilities.
6. Validity of additions and disallowances made by the Income-tax Officer (ITO).
Detailed Analysis
1. Determination of Whether the Sale Was by Individual Partners or by the Firm
The assessee contended that the individual partners sold their shares separately and not jointly in the partnership. The AAC, however, found that the sale of assets was by the firm, not by individual partners. The AAC noted that the sale consideration was accounted for in the books of the firm and adjusted accordingly. The Tribunal upheld this view, stating that the sale deed executed by one partner could not alienate the firm's properties. The sale was completed only when the other partner surrendered his interest, effectively dissolving the firm.
2. Taxability of the Transaction Under Section 41(2) of the IT Act
The ITO had brought to tax a profit of Rs. 78,799 under Section 41(2) of the IT Act, treating the sale proceeds as exceeding the written down value of the assets. The assessee argued that no profit arises under Section 41(2) when the undertaking itself is sold. The Tribunal, however, held that the sale was of individual assets and not the entire business, thereby making the profit taxable under Section 41(2).
3. Applicability of Capital Gains Tax
The assessee reported a net capital gain of Rs. 49,792 after deductions. The ITO, however, determined that there was a capital loss of Rs. 75,360. The Tribunal found that the sale was of individual assets and not the business as a whole. Therefore, the capital gains tax was applicable. The Tribunal rejected the assessee's reliance on the Karnataka High Court's decision in Syndicate Bank Ltd., as the facts of the case were distinguishable.
4. Nature of the Sale: Whether It Was a Slump Sale or a Sale of Individual Assets
The assessee claimed that it was a slump sale, and therefore, the surplus was not taxable. The Tribunal disagreed, noting that the sale deed and surrender deed described the sale of individual assets such as buildings and fittings, not the business as a whole. The Tribunal cited the decision in CIT v. F.X. Periera & Sons (Travancore) (P.) Ltd. to support its conclusion that the sale was of individual assets and not a slump sale.
5. Treatment of Sale Proceeds and Outstanding Liabilities
The Tribunal noted that the sale proceeds were accounted for in the firm's books, and no liabilities were transferred to the vendees. The treatment of sale proceeds in the books of the assessee indicated that it was a sale of assets by the firm on its dissolution. The Tribunal also noted that the firm continued for purposes of winding up after its dissolution, as envisaged under Section 47 of the Partnership Act and Section 189 of the IT Act.
6. Validity of Additions and Disallowances Made by the Income-tax Officer (ITO)
The ITO had added a sum of Rs. 7,000 towards omission of rent and disallowed Rs. 2,000 and Rs. 1,000 for want of proof. The AAC confirmed these additions and disallowances. The Tribunal found no specific ground of appeal on these issues and declined to entertain the plea to consider them.
Conclusion
The Tribunal upheld the AAC's order, concluding that the sale was of individual assets by the firm and not a slump sale. The profit arising from the sale was taxable under Section 41(2) and as capital gains. The appeal was dismissed.
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1991 (12) TMI 102
Issues Involved:
1. Imposition of Penalty u/s 271D for violation of section 269SS.
2. Interpretation of the term "any other person" in section 269SS.
3. Adequate opportunity for the assessee to present their case.
Summary:
Issue 1: Imposition of Penalty u/s 271D for violation of section 269SS
The Deputy Commissioner of Income-tax imposed a penalty of Rs. 60,000 on the respondent-assessee for accepting a loan in cash from Kulwant Rai & Sons, HUF, in violation of section 269SS. The first appellate authority quashed the penalty, leading to the revenue's appeal.
Issue 2: Interpretation of the term "any other person" in section 269SS
The revenue argued that the term 'person' u/s 269SS should be interpreted in the context of section 2(31), which includes an individual, HUF, company, firm, etc. They contended that a partner as an individual has a distinct 'personage' from that of an HUF or firm. The assessee argued that the deposit was made by the karta of the HUF, who is also a partner in the firm, thus not violating section 269SS.
Issue 3: Adequate opportunity for the assessee to present their case
The first appellate authority quashed the penalty on the grounds that the assessee was not given adequate opportunity to present their case due to procedural irregularities. The revenue contended that such irregularities are curable and do not merit quashing the penalty order. The Tribunal agreed with the revenue, citing the Supreme Court's decision in Guduthur Bros. v. ITO, which allows proceedings to continue from the point where the irregularity occurred.
Comprehensive Details:
1. Penalty Imposition:
The Tribunal noted that the penalty u/s 271D is for contravention of section 269SS, which mandates that loans or deposits above Rs. 20,000 must be accepted through an account payee cheque or bank draft. The assessee accepted Rs. 60,000 in cash, leading to the penalty.
2. Interpretation of "any other person":
The Tribunal examined whether a partner is considered "any other person" vis-a-vis the firm. It concluded that despite the partner representing his smaller HUF, the loan was from the bigger HUF, making it a transaction between the firm and "any other person" under section 269SS. Thus, the assessee violated section 269SS.
3. Adequate Opportunity:
The Tribunal disagreed with the first appellate authority's reasoning that the penalty should be quashed due to procedural irregularities. It held that such irregularities are curable and do not annul the penalty order. The Tribunal cited the Supreme Court's decision in Guduthur Bros. v. ITO, which allows the proceedings to continue from the point of irregularity.
Final Decision:
The Tribunal upheld the first appellate authority's order quashing the penalty, considering the bona fide belief of the assessee and the technical nature of the breach. It emphasized that penalty provisions are penal in character and should not be imposed unless the default is deliberate or contumacious. The revenue's appeal was dismissed.
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1991 (12) TMI 101
Issues Involved:
1. Legitimacy of the addition of Rs. 5,11,680 as undisclosed income.
2. Validity of the CIT (Appeals) decision to delete the addition.
3. Explanation and evidence provided by the assessee regarding the cash credit.
Detailed Analysis:
1. Legitimacy of the Addition of Rs. 5,11,680 as Undisclosed Income:
The Income Tax Officer (ITO) added Rs. 5,11,680 as undisclosed income under the head "other sources," based on entries in the assessee's Cash Book as of 31-3-1985. The ITO argued that the assessee had no tangible cash corresponding to this amount and that it should be ignored as it represented intangible assets. The ITO held that the assessee had introduced this amount in cash to offset a fictitious loss, which was not justifiable. The ITO treated this amount as income from undisclosed sources.
2. Validity of the CIT (Appeals) Decision to Delete the Addition:
The CIT (Appeals) rejected the ITO's arguments and held that the cash balance shown by the assessee was legitimate. The Commissioner noted that the settlement with the IT Department replaced the accumulated book loss of Rs. 5,11,680 with an aggregate profit of Rs. 7,60,000. The CIT (Appeals) argued that the entire adjustment should be allowed, as the figure of accumulated income/loss had been increased by Rs. 10,61,680. Consequently, the CIT (Appeals) deleted the addition made by the ITO.
3. Explanation and Evidence Provided by the Assessee Regarding the Cash Credit:
The assessee argued that the amount of Rs. 5,11,680 was available as cash, as it had only expended 90% of the gross receipts of Rs. 76,00,000, leaving the remaining 10% as net profit. The assessee's counsel submitted that this amount remained intact and was reintroduced into the accounts. The assessee relied on the Supreme Court's decision in CIT v. Harprasad & Co. (P.) Ltd. and other cases to argue that losses are negative income and should be allowed as cash entries.
Tribunal's Decision:
The Tribunal examined the contentions and materials presented. It noted that the assessee's claim that the losses were fictitious and that the cash was still available was not supported by any evidence. The Tribunal held that the amount of Rs. 5,11,680 was an unexplained cash credit under section 68 of the Income-tax Act, 1961. The Tribunal found that the CIT (Appeals) had not correctly appreciated the facts and reversed the CIT (Appeals) order, restoring the addition made by the ITO.
Conclusion:
The appeal by the Revenue was allowed. The Tribunal concluded that the assessee failed to discharge its burden of proof under section 68 of the Act regarding the cash credit of Rs. 5,11,680. The addition made by the ITO was restored, and the CIT (Appeals) order was reversed.
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1991 (12) TMI 100
Issues involved: Appeal against penalties levied on deceased under section 271(1)(a) and section 271(1)(c) by the Income Tax Officer (ITO).
Summary:
Issue 1: Penalty under section 271(1)(a)
The deceased's assessment was completed, and notices were issued posthumously. The trustees, as legal representatives, were penalized for defaults of the deceased. The ITO did not serve hearing notices to the trustees as required by section 282. The tribunal held that penalizing legal representatives for deceased's defaults is illogical and unfair. Notices under section 274 were found to be ambiguous and lacked precise details of defaults. The tribunal emphasized that penalty proceedings are quasi-criminal and should not extend to legal representatives for deceased's actions. The penalties under section 271(1)(a) were canceled due to non-application of mind by the ITO and lack of clarity in the notices.
Issue 2: Penalty under section 271(1)(c)
The ITO penalized the trustees under section 271(1)(c) without ensuring they were aware of the deceased's reasons for defaults. The tribunal found the penalties unsustainable as the ITO did not establish a clear default by the deceased. Legal representatives cannot be penalized for quasi-criminal offenses committed by the deceased. The tribunal cited the principle that crimes die with the offender and extended it to quasi-criminal penalty proceedings. The penalties under section 271(1)(c) were canceled due to serious non-compliance with mandatory provisions of section 274 and section 282.
Conclusion:
The tribunal canceled the penalties and directed the ITO to refund any collected amounts from the trustees. The appeals were allowed in favor of the trustees, emphasizing the importance of fair and logical application of penalty provisions in tax law.
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1991 (12) TMI 99
Issues: Revenue's objection to deletion of addition to assessee's income by CIT(A)
The judgment involves the Revenue objecting to the deletion of an addition of Rs. 2,45,600 made by the Income Tax Officer (ITO) to the income of the assessee, who is a Managing Director of a company. The addition was based on jewellery, ornaments, and silver utensils found during a search conducted at the assessee's bank locker. The ITO concluded that these items were acquired with unaccounted income, leading to the addition. The CIT(A) deleted this addition, prompting the Revenue's appeal to the Tribunal.
Analysis:
1. Background and Addition by ITO: The ITO made the addition to the assessee's income based on the jewellery and ornaments found during a search operation. Despite some allowance for certain items, a significant amount was added as unaccounted income due to the ITO's rejection of the assessee's explanation and evidence.
2. Assessee's Appeal: The assessee contended that the addition was unjustified, providing evidence to establish ownership and origin of the items. The CIT(A) analyzed the evidence and concluded that the addition was not justified, considering the family's financial standing and background.
3. CIT(A)'s Decision: The CIT(A) highlighted the family's affluent background, citing trust deeds and income details of relatives to support the assessee's claims. He applied the principle of preponderance of probability to determine ownership of the items, considering their present and past values.
4. Tribunal's Assessment: The Tribunal upheld the CIT(A)'s decision, emphasizing the importance of surrounding circumstances and family background in assessing the case. The Tribunal found no reason to doubt the truthfulness of the assessee's and other witnesses' statements, confirming the deletion of the addition.
5. Legal Principles Applied: The judgment referenced the Supreme Court's decision in CIT vs. Durga Prasad More regarding the onus of proof and the importance of considering surrounding circumstances in tax matters. The Tribunal found that the CIT(A) correctly applied these principles in the present case.
6. Conclusion: The Tribunal dismissed the Revenue's appeal, affirming the CIT(A)'s decision to delete the addition to the assessee's income. The judgment emphasized the lack of material to support the Revenue's objections and the credibility of the assessee's and other witnesses' statements, considering their family background and circumstances.
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1991 (12) TMI 98
Issues:
1. Whether the market fee collected by the assessee constitutes a trading receipt.
2. Whether the CIT's order under section 263 of the Income-tax Act, 1961 was justified.
3. Whether the assessee is entitled to deduction on the mercantile system of accounting for the market fee collected.
Analysis:
1. The appeals pertain to the income-tax assessment of a company running a flour mill. The primary issue revolves around the market fee collected by the company under the Bihar Agricultural Produce Markets Act, 1960. The CIT contended that this fee should be considered a revenue receipt, leading to a revised total income for the assessee. The company challenged this assertion, arguing that the market fee did not constitute a trading receipt based on various legal precedents and the nature of the fee collection process under the Act.
2. The CIT's order under section 263 of the Income-tax Act, 1961 was challenged by the assessee before the Tribunal. The CIT had revised the assessment order, considering the market fee as a revenue receipt and directing the Assessing Officer to adjust the total income accordingly. The Tribunal examined the arguments presented by both parties, focusing on the distinction between a tax and a fee, as well as the applicability of section 43B of the Act to the market fee collection. Ultimately, the Tribunal concluded that the CIT's order was not justified as the market fee did not qualify as a trading receipt and was allowable as a deduction under the mercantile system of accounting.
3. The final issue addressed was whether the assessee was entitled to deduction on the mercantile system of accounting for the market fee collected. The Tribunal referenced legal decisions that supported the assessee's position, emphasizing that the fee collection did not constitute a taxable trading receipt. By following established precedents and considering the nature of the market fee under the Bihar Agricultural Produce Markets Act, 1960, the Tribunal ruled in favor of the assessee, allowing the appeal and canceling the CIT's order under section 263 of the Act. The Tribunal upheld the company's right to claim deduction for the market fee collected based on the mercantile system of accounting, thereby resolving the issue in favor of the assessee.
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1991 (12) TMI 97
Issues Involved:
1. Deletion of the Excise Duty Rebate of Rs. 26,13,819 from the assessment.
2. Deletion of the disallowance of the expenses on running and maintenance of Jeeps and cars under section 37(3A).
Detailed Analysis:
1. Deletion of the Excise Duty Rebate of Rs. 26,13,819 from the assessment:
The assessee, a Public Limited Company, was involved in manufacturing sugar, oil, confectionery, and tea. During the assessment year 1985-86, the company claimed an excise duty rebate based on Government of India notifications. The controversy arose regarding the computation of the average production during the base period for determining the rebate. The Excise Department and the assessee had different interpretations of how to calculate the average production, leading to a dispute over the rebate amount.
The assessee calculated the rebate based on total production during the base period, including years with zero production, resulting in a higher rebate claim. The Excise Department, however, excluded the years with zero production, leading to a lower rebate calculation. The dispute resulted in a difference of Rs. 26,13,819.
The assessee filed writ petitions before the Calcutta High Court, which issued interim orders allowing the company to claim the higher rebate amount upon furnishing a bank guarantee. The assessee included this rebate amount under current liabilities in its balance sheet, not as income, arguing that the amount was disputed and pending final adjudication by the Supreme Court.
The Assessing Officer included the rebate amount as taxable income for the assessment year 1985-86, citing the cash basis of accounting followed by the assessee. However, the CIT(Appeals) accepted the assessee's contention that the amount received under interim court orders did not constitute income, as it was subject to final adjudication and could be considered an advance.
The Tribunal upheld the CIT(Appeals) decision, referencing the Supreme Court's judgment in Hindustan Housing & Land Development Trust Ltd., which held that amounts received under interim orders pending final adjudication do not constitute income. The Tribunal emphasized that the receipt should have the characteristics of income, which was not the case here as the right to the rebate was still disputed.
2. Deletion of the disallowance of the expenses on running and maintenance of Jeeps and cars under section 37(3A):
The issue involved the disallowance of expenses on running and maintenance of Jeeps and cars claimed by the assessee under section 37(3A). The details and arguments regarding this issue were not extensively covered in the provided text, and thus, the Tribunal's decision on this matter remains unspecified in the summary.
Conclusion:
The Tribunal concluded that the excise duty rebate of Rs. 26,13,819 received by the assessee during the accounting year relevant to the assessment year 1985-86 did not constitute income and was rightly excluded from the assessment by the CIT(Appeals). The decision was based on the principle that amounts received under interim court orders pending final adjudication do not have the characteristics of income. The details regarding the disallowance of expenses on running and maintenance of Jeeps and cars under section 37(3A) were not elaborated in the provided text.
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1991 (12) TMI 96
Issues Involved:
1. Penalty under Section 273 of the Income-tax Act, 1961.
2. Penalty under Section 271(1)(a) of the Income-tax Act, 1961.
3. Recording of satisfaction by the Income Tax Officer (ITO).
4. Cryptic nature of penalty orders.
5. Reasonable cause for delay in filing the return.
6. Quantum of penalty.
Issue-wise Detailed Analysis:
1. Penalty under Section 273 of the Income-tax Act, 1961:
The ITO levied a penalty of Rs. 14,945 under Section 273(b) for the assessee's failure to pay the advance tax of Rs. 1,83,481 as per the estimate filed on 15-3-1980. The CIT (A) confirmed this penalty, stating that paucity of funds was not a reasonable cause for non-payment of advance tax. The Tribunal found that the penalty was levied not for any failure to file an estimate of advance tax but for non-payment of advance tax as per the estimate. Since the assessee had filed an estimate, there was no default under Section 273(b), making the penalty unsustainable.
2. Penalty under Section 271(1)(a) of the Income-tax Act, 1961:
The ITO imposed a penalty of Rs. 27,898 for the assessee's delay of 7 months in filing the return for the assessment year 1980-81. The CIT (A) upheld this penalty, citing non-cooperation and negligence. The Tribunal found that the reasons for the delay, such as incomplete accounts of the partnership firm and the illness of the accountant, constituted a reasonable cause. The Tribunal held that the delay was a technical or venial breach and no penalty should be levied.
3. Recording of Satisfaction by the Income Tax Officer (ITO):
The Tribunal noted that the final assessment order dated 28-3-1990 did not record any satisfaction by the ITO for initiating penalty proceedings under Sections 273 or 271(1)(a). The earlier assessment order dated 20-9-1985, which initiated penalty proceedings, was set aside. The Tribunal referred to the Supreme Court decision in D.M. Manasvi v. CIT, which emphasized that satisfaction of the ITO in the course of assessment proceedings is a condition precedent for initiating penalty proceedings. The absence of such satisfaction rendered the penalties unsustainable.
4. Cryptic Nature of Penalty Orders:
The Tribunal agreed with the assessee's counsel that the penalty orders were cryptic and did not provide reasons for rejecting the assessee's explanations. Citing the Supreme Court decisions in Sampat Tatyada Shinde v. State of Maharashtra and Travancore Rayons Ltd. v. Union of India, the Tribunal emphasized the necessity of passing a speaking order with sufficient reasons. The failure to do so made the penalty orders liable to be struck down.
5. Reasonable Cause for Delay in Filing the Return:
The Tribunal found that the reasons provided by the assessee, such as incomplete accounts of the partnership firm and the illness of the accountant, constituted a reasonable cause for the delay in filing the return. The Tribunal held that the delay was not due to any contumacious conduct or conscious disregard of statutory obligations but was a technical or venial breach of the provisions of law.
6. Quantum of Penalty:
The Tribunal noted that the penalty levied was highly excessive in light of the final tax determined in the assessment order dated 28-3-1990. However, since the entire penalty was deleted, it was unnecessary to consider the alternative plea regarding the quantum of the minimum penalty leviable.
Conclusion:
The Tribunal allowed both appeals, canceling the penalties levied under Sections 273 and 271(1)(a) of the Income-tax Act, 1961. The penalties were found to be unsustainable due to the absence of recorded satisfaction by the ITO, the cryptic nature of penalty orders, and the reasonable cause for the delay in filing the return.
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1991 (12) TMI 95
Issues Involved:
1. Levy of interest under Section 217 of the Income-tax Act, 1961.
2. Deletion of Rs. 48,000 out of the total addition of Rs. 60,000 as unexplained cash.
3. Deletion of Rs. 800 representing the value of US $ 89 found.
4. Deletion of Rs. 11,66,441 as concealed income from share business.
5. Deletion of Rs. 16,476 representing interest on borrowed capital disallowed by the ITO.
Detailed Analysis:
1. Levy of Interest under Section 217 of the Income-tax Act, 1961:
The assessee objected to the levy of interest amounting to Rs. 2,20,896 under Section 217, arguing that it was unjustified and illegal. The CIT (Appeals) considered the relief as consequential to other reliefs and did not examine the issue in detail. The Tribunal found that the matter needs re-examination and fresh disposal by the CIT (Appeals) as the assessee had completely denied liability. The Tribunal set aside this portion of the CIT (Appeals) order and restored the ground for fresh disposal in accordance with law after giving a reasonable opportunity to the assessee and the ITO.
2. Deletion of Rs. 48,000 out of the Total Addition of Rs. 60,000 as Unexplained Cash:
The ITO added Rs. 60,000 as unexplained income after rejecting the assessee's explanations regarding the source of cash found during a search. The CIT (Appeals) deleted Rs. 48,000 of this addition, accepting the assessee's explanations about withdrawals from M/s. Luxmi Traders and savings of family members. The Tribunal upheld the CIT (Appeals) decision, agreeing that the books of M/s. Luxmi Traders supported the assessee's claims and that the departmental authorities had allowed entries in the seized books after satisfying themselves about the genuineness of the claims.
3. Deletion of Rs. 800 Representing the Value of US $ 89 Found:
The ITO added Rs. 800 rejecting the explanation that the amount was savings from foreign exchange sanctioned to the assessee's son. The CIT (Appeals) accepted the explanation supported by an affidavit and passport details. The Tribunal found no merit in the Revenue's objection, noting that the CIT (Appeals) had given the ITO an opportunity to examine the evidence and had acted in conformity with law, thus upholding the deletion.
4. Deletion of Rs. 11,66,441 as Concealed Income from Share Business:
The ITO added Rs. 11,66,441 based on speculative transactions recorded in seized papers, which the assessee denied. The CIT (Appeals) found no conclusive evidence linking these transactions to the assessee and noted the absence of material to prove the transactions resulted in profit. The Tribunal agreed with the CIT (Appeals), emphasizing the lack of evidence and the necessity of positive proof over suspicion, thus confirming the deletion.
5. Deletion of Rs. 16,476 Representing Interest on Borrowed Capital Disallowed by the ITO:
The ITO disallowed Rs. 16,476 as interest on borrowed capital, alleging it was used for personal expenditure. The CIT (Appeals) found no nexus between the borrowing and personal expenses. The Tribunal, following its earlier decision in the assessee's case for the previous year, confirmed the deletion, noting no material was presented to rebut the CIT (Appeals) findings.
Conclusion:
The Tribunal partly allowed the assessee's appeal for statistical purposes and dismissed the departmental appeal, confirming the CIT (Appeals) decisions on the deletion of various additions and the need for re-examination of the interest levy under Section 217.
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1991 (12) TMI 94
Issues Involved:
1. Rejection of the claim for deduction of Rs. 3 lakhs as business loss.
2. Nature and characterization of the shares acquired by the assessee.
3. Applicability of relevant case law.
Detailed Analysis:
1. Rejection of the Claim for Deduction of Rs. 3 Lakhs as Business Loss:
The appellant contested the order of the CIT (Appeals) which upheld the Assessing Authority's rejection of its claim for deduction of Rs. 3 lakhs as business loss. The assessee, M/s. Hind Marketing Corporation (P.) Ltd., claimed this amount as a loss on the sale of shares held in M/s. Madras Vanaspati Ltd., asserting it as a business loss. However, the Income-tax Officer disallowed this claim due to the assessee's failure to provide details and evidence regarding the sale of the investment. This disallowance was initially upheld by the CIT(Appeals), leading to the appeal before the Tribunal.
2. Nature and Characterization of the Shares Acquired by the Assessee:
The crux of the matter revolved around whether the shares in question were part of the assessee's stock-in-trade or an investment. The CIT(Appeals) argued that the shares were treated as an investment by the appellant and not as stock-in-trade, thereby rejecting the claim of business loss. The CIT(Appeals) also held that the adjustment of the purchase consideration against the loan did not convert the shares into stock-in-trade. This conclusion was supported by the decision in VR. KR. S. Firm v. CIT [1966] 61 ITR 661.
However, the Tribunal found that the shares were acquired in lieu of a money lending debt, thus forming part of the stock-in-trade of the money lending business. The Tribunal cited the assessee's own case for the assessment year 1969-70, where it was established that the acquisition of shares was part of the money lending business. This was further affirmed by the High Court, indicating that the shares retained their character as business assets.
3. Applicability of Relevant Case Law:
The Tribunal referenced the Supreme Court's decision in Pandit Narain Dutt Chhimwal v. CIT [1972] 83 ITR 413, which held that assets acquired in lieu of a money lending debt retain their character as business assets. This was directly applicable to the present case, where the shares were acquired as part of the money lending business. The Tribunal noted that the CIT(Appeals) erred in requiring the assessee to be a dealer in shares to classify the shares as stock-in-trade.
The decision of the Madras High Court in VR. KR. S. Firm was distinguished on the grounds that it did not involve shares acquired in lieu of a money lending debt. Therefore, the Tribunal concluded that the loss of Rs. 3 lakhs on the sale of shares was a revenue loss arising from the money lending business and was allowable in the computation of business income.
Conclusion:
The Tribunal allowed the appeal, holding that the loss of Rs. 3 lakhs on the sale of shares was a revenue loss incurred in the course of the assessee's money lending business and thus, deductible in the computation of business income. The Tribunal's decision was based on the established facts and supported by relevant case law, particularly the Supreme Court's ruling in Pandit Narain Dutt Chhimwal's case.
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1991 (12) TMI 93
Issues Involved:
1. Sustaining of penalty under section 273(2)(a) of the Income-tax Act, 1961.
2. Validity of the assessee's estimates of advance tax.
3. Justification for the penalty imposed by the Income Tax Officer (ITO).
Issue-wise Detailed Analysis:
1. Sustaining of Penalty under Section 273(2)(a) of the Income-tax Act, 1961:
The appeal concerns the penalty of Rs. 2,25,544 levied under section 273(2)(a) of the Income-tax Act, 1961, for the assessment year 1976-77. The penalty was imposed due to the assessee's submission of a wrong estimate of advance tax. The Income Tax Officer (ITO) initiated penal action under section 273(2)(a) against the assessee for filing an incorrect estimate of advance tax under sections 212(1) and (2). The Commissioner of Income Tax (Appeals) upheld the penalty, leading to the present appeal.
2. Validity of the Assessee's Estimates of Advance Tax:
The assessee, engaged in the manufacture and sale of paper, filed its income return for the year ending 31-3-1976, initially declaring a total income of Rs. 3,45,94,013, which was later revised to Rs. 3,40,91,560. The final assessed income was Rs. 3,53,25,310. The ITO noted that the assessee's first estimate filed on 12-10-1975 showed an income of Rs. 1,60,00,000, and a revised estimate on 5-3-1976 showed an income of Rs. 2,25,00,000. The Commissioner observed that the assessee did not provide any facts or figures to justify these estimates and failed to explain the basis for these estimates, especially given the upward trend in production as mentioned in the Director's reports for the accounting years ending 31-3-1975 and 31-3-1976.
The learned counsel for the appellant argued that the estimates were based on the income returned for the previous assessment year 1975-76, considering the rise in production and the fall in the price of paper. However, the Departmental Representative pointed out that this explanation was being stated for the first time before the Tribunal and lacked substantiation. The Tribunal noted that the assessee had filed its return for the previous year showing an income of Rs. 2,69,41,790 and received a revised demand notice for advance tax of Rs. 1,54,86,623. The Tribunal found no basis for the assessee's estimate of Rs. 1,60,00,000 and noted the lack of explanation for the lower estimate despite the increase in production.
3. Justification for the Penalty Imposed by the Income Tax Officer (ITO):
The Tribunal examined the provisions of section 273(2)(a) of the Income-tax Act, 1961, which penalizes an assessee for furnishing an estimate of advance tax that they knew or had reason to believe to be untrue. The Tribunal referred to judicial interpretations, including the decisions of the Madras High Court in P. Arunachala Mudaliar v. CIT and Appavoo Pillai v. CIT, and the Calcutta High Court in CIT v. Birla Cotton Spg. & Wvg. Mills Ltd. The Tribunal found that the assessee's estimates lacked basis and were not justified by the state of accounts as they stood on the date of the estimates. The Tribunal also noted that the assessee's explanation regarding the fall in the price of paper was unsubstantiated and vague.
The Tribunal concluded that the assessee's estimates were not honest, prudent, fair, or reasonable and that the assessee had been postponing the payment of advance tax. The penalty levied was the minimum amount of 10% of the tax as specified in section 273(2)(a) of the Act. The Tribunal upheld the penalty, confirming the order of the CIT (Appeals) and dismissing the appeal.
Conclusion:
The appeal was dismissed, and the penalty of Rs. 2,25,544 levied under section 273(2)(a) of the Income-tax Act, 1961, was upheld. The Tribunal found that the assessee's estimates of advance tax were unsubstantiated and not justified, and the penalty was deemed fully justified.
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1991 (12) TMI 92
Issues Involved:
1. Whether free samples distributed by a pharmaceutical company to doctors are considered as expenses on 'advertisement, publicity, and sales promotion' u/s 37(3A)/(3B) of the Income-tax Act, 1961.
2. Whether the assessment order was barred by limitation.
3. Inclusion of certain expenses for calculating disallowance u/s 37(3A).
4. Disallowance of interest paid on amounts received from directors and shareholders u/s 40A(8).
5. Non-admission of additional ground for relief u/s 80J.
6. Deduction u/s 35 for capital expenditure on scientific research.
7. Allowability of Pooja expenses.
Summary:
Issue 1: Free Samples as Advertisement Expenses
The Tribunal examined whether free samples distributed to doctors by pharmaceutical companies qualify as 'advertisement, publicity, and sales promotion' expenses u/s 37(3A)/(3B). It was argued that the samples were for obtaining information on the efficacy of medicines and not for advertisement. However, the Tribunal found that the distribution of samples also served to promote sales and create goodwill with doctors, thus falling within the ambit of 'sales promotion'. The Tribunal concluded that half of the expenditure on samples should be disallowed under section 37(3A).
Issue 2: Assessment Order Limitation
The assessee contended that the assessment order was barred by limitation as it was completed more than six months after the issue of the draft order. The Tribunal rejected this ground, stating that the assessment was completed within the permissible time frame, excluding the period of 180 days as provided under Explanation 1(iv) to section 153.
Issue 3: Inclusion of Certain Expenses
The Tribunal upheld the inclusion of expenses on advertisement in medical journals and gifts to medical practitioners for calculating disallowance u/s 37(3A). However, it allowed the expenditure on presentation articles and lunch & snacks for business guests, stating that these were normal business expenses and not extravagant or wasteful.
Issue 4: Disallowance of Interest u/s 40A(8)
The Tribunal upheld the disallowance of interest paid on amounts received from directors and shareholders u/s 40A(8), following the Special Bench decision in Kaloomal Shorimal Sachdev Rangwalla (P.) Ltd. v. First ITO.
Issue 5: Relief u/s 80J
The Tribunal found that the CIT(Appeals) erred in not admitting the additional ground for relief u/s 80J. It noted that similar claims had been allowed in previous years and directed the CIT(Appeals) to dispose of the case on merits after affording adequate opportunity to the parties.
Issue 6: Deduction u/s 35 for Scientific Research
The Tribunal upheld the CIT(Appeals)'s decision allowing deduction u/s 35 for capital expenditure on scientific research, noting that the building was used for scientific research and the provisions of section 35(1)(iv) were clear in allowing such deductions.
Issue 7: Pooja Expenses
The Tribunal upheld the CIT(Appeals)'s decision to allow a significant portion of Pooja expenses, stating that they were incurred for business purposes to dispel workers' irrational beliefs and ensure their attendance at work. Only a small portion was disallowed to cover unverifiable expenses.
Conclusion:
The assessee's appeal was partly allowed, and the department's appeal was dismissed.
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1991 (12) TMI 91
Issues Involved:
1. Deduction of medical expenses under Section 37(1) of the Income-tax Act, 1961.
2. Determination of whether the medical expenses are personal or professional in nature.
Issue-Wise Detailed Analysis:
1. Deduction of Medical Expenses under Section 37(1) of the Income-tax Act, 1961:
The assessee, a professional actor specializing in villain roles, claimed a deduction of Rs. 1,29,190 for expenses incurred for an open heart surgery in the USA. The claim was made under the provisions of Section 37(1) of the Income-tax Act, 1961, asserting that the expenditure was incurred "wholly and exclusively for the purpose of the profession." The assessee argued that the surgery was necessary to maintain his physical fitness, which is essential for his profession. He cited the case of Prince v. Mapp (Inspector of Taxes) [1971] 79 ITR 671 (Ch. D.) to support his claim. However, the Income Tax Officer (ITO) and the Commissioner of Income Tax (CIT) (Appeals) disallowed the claim, stating that the expenditure was personal and not incurred solely for professional purposes.
2. Determination of Whether the Medical Expenses are Personal or Professional in Nature:
The ITO and CIT (Appeals) concluded that the medical expenses were personal, emphasizing that the surgery was essential for the assessee to live as a healthy man, and only incidentally related to his profession. They relied on the case of Norman v. Golder (Inspector of Taxes) [1945] 13 ITR (Suppl.) 21 (CA), which held that personal health expenses cannot be considered wholly and exclusively for professional purposes. The Tribunal upheld this view, stating that the expenditure was driven by a personal desire to live longer and could not be split into professional and personal segments. The Tribunal also noted that the decision in the case of Mehboob Productions (P.) Ltd. v. CIT [1977] 106 ITR 758 was not applicable, as the facts were distinguishable. In Mehboob Productions, the expenditure was incurred by a company for its director, which was deemed wholly and exclusively for business purposes. However, in this case, the expenditure was incurred by the individual assessee for personal health reasons.
Conclusion:
The Tribunal dismissed the appeal, upholding the decision of the IT authorities to disallow the deduction of Rs. 1,29,190. The Tribunal emphasized that the expenditure was personal in nature and not incurred wholly and exclusively for professional purposes, as required under Section 37(1) of the Income-tax Act, 1961.
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1991 (12) TMI 90
Issues Involved:
1. Investment allowance for machinery used for scientific research.
2. Disallowance of expenditure incurred for fees paid to the Registrar of Companies for increasing authorized share capital.
3. Allowance of weighted deduction on inspection charges.
4. Exclusion of excise duty while valuing the closing stock.
5. Computation of section 80HH deduction.
Issue-wise Detailed Analysis:
1. Investment Allowance for Machinery Used for Scientific Research:
The assessee contended that proviso (d) to section 32A(1) should apply only when both deductions occur in the same year, and not when the actual cost is allowed in different years. The Assessing Officer and CIT (Appeals) disagreed, stating that the entire cost of the machinery was allowed in the assessment year 1982-83, thus prohibiting the investment allowance as per proviso (d) to section 32A(1). The Tribunal upheld this view, emphasizing that "any one previous year" does not restrict to the same year, and the prohibition applies if the entire cost is allowed in any year.
2. Disallowance of Expenditure Incurred for Fees Paid to the Registrar of Companies for Increasing Authorized Share Capital:
The assessee's claim that the increase in authorized capital was predominantly for issuing bonus shares was partially accepted. The CIT (Appeals) allowed the proportionate expenditure related to the bonus shares but disallowed the rest. The Tribunal upheld this decision, referencing the Bombay High Court's ruling in Bombay-Burmah Trading Corpn. Ltd. v. CIT, which differentiated between fees for enhancement of capital (capital expenditure) and fees for issuing bonus shares (revenue expenditure).
3. Allowance of Weighted Deduction on Inspection Charges:
The Assessing Officer restricted weighted deduction on inspection charges proportionate to the export turnover. The CIT (Appeals) allowed the entire deduction, interpreting that the restriction applies only to maintenance of laboratory or other facilities, not inspection charges. The Tribunal supported the CIT (Appeals), stating that the restriction in the Proviso to Rule 6AA(c) applies to mixed expenditure and not exclusively export-related expenditure, thus allowing the entire amount as weighted deduction.
4. Exclusion of Excise Duty While Valuing the Closing Stock:
The Assessing Officer included excise duty in the valuation of closing stock, which the CIT (Appeals) reversed, citing consistent past practices and accepted commercial principles. The Tribunal, referencing the Third Member decision in Raymond Woollen Mills Ltd. v. ITO, held that the inclusion of excise duty is necessary for determining true and correct profits, thus reversing the CIT (Appeals) and restoring the Assessing Officer's decision.
5. Computation of Section 80HH Deduction:
The Assessing Officer reduced the weighted deduction amount from the income entitled to section 80HH relief, which the CIT (Appeals) reversed based on the Tribunal's decision in Bihar Mercantile Union (P.) Ltd. v. ITO. The Tribunal, however, upheld the Assessing Officer's approach, referencing the Supreme Court's decision in Distributors (Baroda) (P.) Ltd. v. Union of India, which mandates that deductions under section 80HH should be computed after allowing weighted deduction under section 35B.
Conclusion:
The Tribunal's judgment addressed multiple issues concerning investment allowance, capital expenditure, weighted deductions, valuation of closing stock, and computation of section 80HH deductions. The decisions were based on interpretations of specific provisions and precedents, ensuring adherence to statutory requirements and judicial principles.
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1991 (12) TMI 89
Issues:
Interpretation of section 41(1) of the Income-tax Act regarding treatment of miscellaneous credit balances as revenue receipt.
Detailed Analysis:
Issue: Interpretation of section 41(1) of the Income-tax Act regarding treatment of miscellaneous credit balances as revenue receipt.
Analysis:
The case involved a dispute regarding the treatment of a sum of Rs. 2,01,432 as a revenue receipt under section 41(1) of the Income-tax Act. The Assessing Officer treated this amount as income liable to tax, which was upheld by the learned CIT(A). The appellant contended that this amount was not a revenue receipt and there was no cessation of liability to repay it. The appellant relied on various court decisions to support their argument. The department, on the other hand, argued that by writing back these amounts as credits in the profit & loss account, the appellant had treated them as trading receipts initially, and now sought to avoid tax liability. The Tribunal examined the details of the liabilities, which included amounts from previous years and various types of liabilities. The Tribunal noted that the liabilities written back by the appellant included surplus deposits, unpaid purchase liabilities, and unclaimed expenses. The Tribunal referred to decisions by the Bombay High Court which established that the cessation of liability could occur due to various reasons, such as becoming unenforceable by law, contractual agreement, or discharge of the debt. The Tribunal found that the liabilities in question had in fact ceased, as evidenced by the appellant's actions and lack of payment towards these liabilities. Therefore, the Tribunal upheld the authorities' decision to tax the amount as the appellant's income. The appeal was partly allowed, and the decision was made against the appellant.
This detailed analysis provides an overview of the issues involved in the legal judgment and a comprehensive breakdown of the Tribunal's decision on the interpretation of section 41(1) of the Income-tax Act regarding the treatment of miscellaneous credit balances as revenue receipts.
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1991 (12) TMI 88
Issues: Interpretation of section 11(5) of the IT Act, 1961 regarding exemption for a public charitable trust.
In this judgment, the Appellate Tribunal ITAT BOMBAY-C addressed an appeal by the revenue against the order of the CIT(Appeals)-XIII, Bombay concerning the assessment year 1984-85. The respondent did not appear, leading to an ex parte hearing. The revenue argued that the assessee violated section 11(5) of the IT Act, thus disqualifying them from exemption under section 11. The Income Tax Officer (ITO) disallowed the claim due to the amount credited to the corpus fund remaining with another trust, which was deemed an impermissible investment under section 11(5). The Tribunal examined the facts, noting that the assessee trust and another trust followed the same accounting system. The donation shown as payable in one trust's books was reflected as received in the assessee's books, leading to a misinterpretation by the ITO. The Tribunal analyzed the concept of "investment" and concluded that the amount in question, received as residual income from a trust, did not constitute an investment under section 11(5). The Tribunal cited precedents and dictionaries to define investment as the laying out of money for profit, emphasizing that the sum received by the assessee was not an investment but a donation. Therefore, the Tribunal held that the assessee was entitled to the benefits under section 11, overturning the ITO's decision and upholding the CIT(Appeals) order, ultimately dismissing the revenue's appeal.
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1991 (12) TMI 87
Issues:
1. Interpretation of Section 80RR of the Income Tax Act.
2. Allocation of expenses against foreign receipts for tax relief.
Detailed Analysis:
1. The appeal before the Appellate Tribunal ITAT BOMBAY-A was regarding the interpretation of Section 80RR of the Income Tax Act for the assessment year 1984-85. The primary issue raised was whether the CIT(A) erred in directing the Income Tax Officer (ITO) to allow relief under Section 80RR on the full amount of Rs. 3,91,570 without allocating any portion of the expenditure incurred in India to foreign receipts.
2. The Departmental Representative argued that some portion of the expenses needed to be allocated against the foreign receipts in accordance with Section 80AB of the Act. He cited various judicial precedents, including the Supreme Court decision in CIT vs. P.K. Jhaveri, the Andhra Pradesh High Court decision in CIT vs. Anakapalli Co-operative Marketing Society, and the Bombay High Court decision in CIT vs. Mercantile Bank Ltd., to support the contention of allocation of expenses against foreign receipts for tax relief.
3. The counsel for the assessee, a well-known playback singer with a global reputation, highlighted that the foreign income earned, amounting to Rs. 3,50,385, was received as net income without any corresponding expenditure incurred abroad in foreign exchange. The income was generated from concerts organized by sponsors who bore all expenses related to the concerts, including travel costs, thereby negating the need for the singer to incur any expenses abroad.
4. Moreover, the nature of expenses reflected in the income and expenditure account, such as telephone charges, car maintenance, bank charges, salaries, stationery, printing, and insurance, indicated that these expenses were not related to the foreign income earned. The singer received payments in foreign currency, which were then converted to rupees and deposited in the bank, with no direct correlation between the expenses incurred in India and the foreign receipts.
5. The Tribunal noted that all expenses were indeed incurred in India, and the singer did not bear any expenses for the concerts organized abroad, which generated the foreign income. The sponsors covered all expenses for the concerts and the singer's stay in foreign countries. The Tribunal considered the details provided by the singer, including sponsorship information for tours in various countries, to ascertain the nature of expenses and their relation to the foreign income earned.
6. After considering the arguments from both sides, the Tribunal concurred with the CIT(A) that there was no justification for attributing any portion of the Indian expenses to the foreign receipts earned by the singer. The Tribunal affirmed that the singer, being a renowned artist performing concerts abroad, had all expenses covered by sponsors, and the nature of Indian expenses did not align with the foreign income. Therefore, the Tribunal upheld the CIT(A)'s decision, dismissing the appeal by the Department.
This detailed analysis of the judgment provides a comprehensive overview of the issues involved, the arguments presented by both parties, and the Tribunal's reasoning leading to the dismissal of the Department's appeal.
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1991 (12) TMI 86
Issues Involved:
1. Claim of the assessee under section 80HHC for export turnover.
2. Eligibility of counter sales to foreign tourists for deduction under section 80HHC.
Detailed Analysis:
1. Claim of the Assessee under Section 80HHC for Export Turnover:
The assessee, engaged in the business of exporting garments, claimed a deduction under section 80HHC on its export turnover. Initially, the Assessing Officer allowed the deduction of Rs. 35,425, which was 1% of the f.o.b. value of goods exported (Rs. 35,42,557), upon submission of the required bank certificate proving receipt of money in convertible foreign exchange.
2. Eligibility of Counter Sales to Foreign Tourists for Deduction Under Section 80HHC:
The assessee also claimed a deduction under section 80HHC for sales amounting to Rs. 42,77,636 made across the counter to foreign tourists in foreign currency or through foreign credit cards/cheques. The Commissioner (Appeals) allowed this claim, referencing the Tribunal decision in the case of Natraj Jewellers, which held that sales to foreign tourists in foreign exchange should be treated as export sales.
The Departmental Representative argued that the Natraj Jewellers case pertained to section 35B, which deals with deductions for expenses incurred for promoting exports, not actual export sales. He contended that section 80HHC requires actual export out of India and receipt of foreign exchange, which was not the case here as the sales were made within India.
The assessee's representative countered by stating that section 80HHC requires two conditions: export and receipt of foreign exchange. He cited the Exchange Control Manual and Import & Export Policies treating sales to foreign tourists as deemed exports. He also noted that the Finance Act, 1991, explicitly excluded counter sales from section 80HHC deductions only from 1-4-1986, implying that such sales were eligible for deduction before this date.
The Tribunal considered the provisions of section 80HHC, emphasizing that the objective was to encourage the inflow of convertible foreign exchange. The Tribunal noted that the term "export turnover" includes sale proceeds of goods exported out of India, and the dictionary meaning of "export" involves sending goods out of the country. The Tribunal concluded that sales to foreign tourists, intended to be taken out of India, should be considered export sales.
The Tribunal further elaborated that, commercially, an export sale involves a common intention to export, an obligation to export, and actual export. In this case, the sales to foreign tourists fulfilled these conditions as the goods were intended to be taken out of India, and the tourists were obligated to do so under the Foreign Exchange Regulations Act.
The Tribunal also referred to explanatory notes on the Finance (No. 2) Act, 1991, which clarified that counter sales would not be considered exports from 1-4-1986. Since the assessment year in question was 1983-84, the Tribunal held that the assessee was entitled to the deduction under section 80HHC for counter sales made to foreign tourists in foreign exchange.
In conclusion, the Tribunal upheld the Commissioner (Appeals)'s decision to allow the 80HHC deduction for the counter sales, affirming that the assessee had met all necessary conditions for such sales to be considered export sales under section 80HHC.
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