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Showing 141 to 160 of 211 Records
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1985 (10) TMI 71
Issues involved: Two references u/s 256(1) of the Income-tax Act, 1961 for assessment years 1963-64 and 1964-65.
Depreciation and Development Rebate: The court agreed that the assessee was entitled to depreciation on interest and foreign tour expenses capitalized in earlier years, as reduced by the depreciation directed by the Tribunal. Regarding development rebate, it was agreed that the assessee was entitled to it on capitalized interest, foreign tour expenses, cost of telephone lines for internal system, and cost of power transformers for proper plant functioning. The principles laid down by the Himachal Pradesh High Court were followed, leading to a decision in favor of the assessee for all items under question No. (2).
Relief under Section 90 and/or 91: The court, based on previous decisions, concluded that the assessee was entitled to relief under section 90 and/or 91 on the gross amount of foreign dividends. The decision was made without further discussion.
Conclusion: The court answered all questions in favor of the assessee, citing relevant legal precedents. No costs were awarded in the case.
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1985 (10) TMI 70
Issues:
Interpretation of section 85 of the Income-tax Act, 1961 in relation to dividends received on shares transferred to spouse under section 64(iii) for assessment years 1965-66 and 1966-67.
Analysis:
The case involved a dispute regarding the eligibility of the assessee for relief under section 85 of the Income-tax Act, 1961, concerning dividends received on shares transferred to the spouse under section 64(iii) for the assessment years 1965-66 and 1966-67. The Income-tax Officer initially taxed the dividends received by the assessee on the transferred shares under section 64(iii) and allowed a rebate under section 85. However, the Commissioner of Income-tax later directed the withdrawal of the rebate, stating that the assessee did not fulfill the requirements of section 85 as the shares were owned by the spouse. The Tribunal, on appeal, upheld the relief granted by the Income-tax Officer, finding that the Commissioner's decision was erroneous.
The primary contention was whether the assessee met the conditions under section 85 for claiming the rebate. The Revenue argued that the assessee did not qualify as the owner of the shares and that the dividends could not be considered income in his hands. However, the court noted that section 64(iii) aims to prevent tax evasion by treating income from assets transferred to a spouse as the income of the individual transferring the assets. Therefore, the shares transferred to the spouse were deemed to belong to the assessee, making the dividend income attributable to the assessee.
The court referenced a Supreme Court judgment and a Madras High Court decision to support its interpretation. The Supreme Court ruling in CIT v. T. H. Gotla emphasized that income from a partnership involving the wife and minor children of the assessee should be treated as the assessee's income for setting off losses. Similarly, the Madras High Court in CIT v. P. N. Ramaswamy held that a wife's dividend income must be treated as the assessee's income under section 64(iii). These cases reinforced the principle that income attributed to the spouse due to asset transfers should be clubbed with the assessee's income for tax purposes.
In conclusion, the court held in favor of the assessee, affirming that the conditions of section 85 were met, and the assessee was entitled to the relief on the dividends received. The judgment highlighted the legislative intent behind section 64(iii) and supported the Tribunal's decision to grant the rebate to the assessee. No costs were awarded in the case.
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1985 (10) TMI 69
Issues involved: Interpretation of section 80J of the Income-tax Act, 1961 regarding employment of workers for claiming relief.
Summary:
The High Court of BOMBAY considered a case regarding the entitlement of an assessee to relief under section 80J of the Income-tax Act, 1961, even though ten or more workers were employed only from August, 1969, up to the end of the previous year. The assessee, engaged in manufacturing synthetic fabrics, claimed relief for the assessment year 1970-71. The Income-tax Officer initially denied the relief, but the Appellate Assistant Commissioner and the Income-tax Appellate Tribunal ruled in favor of the assessee.
The main contention was whether the provision of section 80J(4)(iv) required continuous employment of ten or more workers throughout the entire previous year. The court referred to a similar case and held that substantial compliance with the provision is sufficient. It was emphasized that there cannot be a strict rule to determine substantial compliance, and each case must be evaluated based on its facts.
In this specific case, the assessee employed ten workers from August 1969 until the end of the previous year, with the workforce increasing as the manufacturing process expanded. The court found that there was substantial compliance with section 80J(4)(iv) and ruled in favor of the assessee, allowing the benefit of the relief under section 80J.
Therefore, the court answered the question in the affirmative, in favor of the assessee, and no costs were awarded in this matter.
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1985 (10) TMI 68
Issues Involved:
1. Entitlement to allowance for extra shifts.
2. Allowability of interest on borrowings for dividend payments.
3. Allowability of interest on borrowings for tax payments.
4. Allowability of specific revenue expenditure.
Summary:
Issue 1: Entitlement to Allowance for Extra Shifts
The first question was whether the assessee is entitled to allowance for extra shifts in the same manner as in the years up to 1965-66. Counsel agreed that this issue was covered by a previous unreported decision of the court in the assessee's own case. Therefore, the answer to this question is in the affirmative and in favor of the assessee, entitling the assessee to the allowance in the proportion applicable at the relevant time.
Issue 2: Allowability of Interest on Borrowings for Dividend Payments
The second question was whether the interest attributable to borrowings of the overdraft utilized for payment of dividends is an allowable revenue expenditure. Counsel agreed that this issue was covered by the decision in CIT v. Shree Changdeo Sugar Mills Ltd. [1983] 143 ITR 469. Hence, the answer to this question is in the affirmative and in favor of the assessee.
Issue 3: Allowability of Interest on Borrowings for Tax Payments
The third question involved whether the interest attributable to borrowings of the overdraft utilized for payment of advance tax and/or other taxes is an allowable revenue expenditure. The Tribunal and lower authorities had disallowed this interest based on the precedent that interest paid on borrowings for tax payments is not a legitimate deduction, as held in Kishinchand Chellaram v. CIT [1978] 114 ITR 654. The assessee's counsel argued based on the Woolcombers of India Ltd. v. CIT [1982] 134 ITR 219 (Cal) case, suggesting that the taxes were paid out of deposits rather than the overdraft. However, the court found no factual basis or prior argument supporting this claim in the Tribunal's order. Consequently, the third question is answered in the negative and in favor of the Revenue.
Issue 4: Allowability of Specific Revenue Expenditure
The fourth question was whether the sum of Rs. 67,299.90 is an allowable revenue expenditure for the assessment year 1968-69. The amount pertained to expenses for extra staff engaged by the Maharashtra State Farming Corporation Ltd. for various activities related to sugarcane purchased by the assessee. The liability for these expenses was disputed and settled only in January 1967. The court referred to the Supreme Court's judgment in CIT v. Swadeshi Cotton and Flour Mills Private Ltd. [1964] 53 ITR 134 and other relevant cases, concluding that where liability arising out of a contractual obligation is disputed, the assessee can claim a deduction in the year the dispute is settled. Therefore, the fourth question is answered in the affirmative and in favor of the assessee.
Conclusion:
- Question No. 1: Affirmative, in favor of the assessee.
- Question No. 2: Affirmative, in favor of the assessee.
- Question No. 3: Negative, in favor of the Revenue.
- Question No. 4: Affirmative, in favor of the assessee.
There shall be no order as to costs.
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1985 (10) TMI 67
Issues Involved:
1. Deduction of income-tax liability u/s 11(1)(a) of the Income-tax Act, 1961.
2. Justification for changing the method of accounting from mercantile to cash system.
Summary:
Issue 1: Deduction of Income-tax Liability u/s 11(1)(a)
The assessee, a charitable trust, claimed a deduction of Rs. 76,972 as an amount applied for charitable purposes u/s 11(1)(a) for the assessment year 1971-72. The Income-tax Officer denied the deduction, considering the payment of income-tax as an appropriation of income. The Appellate Assistant Commissioner upheld this decision. However, the Tribunal allowed the deduction, stating that the payment of income-tax was a necessary outgoing to be considered before determining the net income for application under section 11(1)(a). The High Court agreed with the Tribunal, emphasizing that income must be determined on commercial principles, and all outgoings, including income-tax, must be deducted to ascertain the surplus income available for application or accumulation for the trust's purposes.
Issue 2: Change of Accounting Method
For the assessment year 1972-73, the assessee switched to the cash system of accounting due to non-receipt of interest income from financially troubled companies. The Income-tax Officer objected, but the Appellate Assistant Commissioner allowed the change, noting the financial difficulties faced by the deposit companies. The Tribunal upheld this decision, stating that income should be computed on general commercial principles and not on a notional basis. The High Court supported the Tribunal's view, stating that the change in the method of accounting was bona fide and necessary due to the peculiar circumstances faced by the trust. The Court emphasized that there is no prohibition in the Act against changing the method of accounting if done bona fide and regularly.
Conclusion:
The High Court answered both questions for the assessment year 1971-72 and the first question for the assessment year 1972-73 in the affirmative, favoring the assessee and against the Revenue. The reference was disposed of with no order as to costs.
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1985 (10) TMI 66
Issues Involved:
1. Classification of income received from Government securities.
2. Applicability of previous legal precedents.
3. Entitlement to set off income against carried forward business loss.
Detailed Analysis:
1. Classification of Income Received from Government Securities:
The primary issue was whether the interest received by the assessee on Government securities, which stood in the names of banks but were held by the assessee as its stock-in-trade, should be classified as "income from business" or "interest on securities" for tax assessment purposes.
The Income-tax Officer treated the income as "interest on securities" under section 18 of the Income-tax Act, 1961. The Appellate Assistant Commissioner, however, ruled that the income should be treated as "income from business" for securities held by banks. The Income-tax Appellate Tribunal upheld this view, stating that the legal owners of the securities were the banks, and what the assessee received was equivalent to interest, assessable under the head "income from business."
The court, however, disagreed with the Tribunal, emphasizing that the income from these securities was "interest on securities" in the hands of the banks and retained its nature when passed to the assessee. The court highlighted that the banks merely collected the interest on behalf of the assessee, and this collection did not change the nature of the income.
2. Applicability of Previous Legal Precedents:
The court referred to the decision in CIT v. Narandas & Sons, which followed the Supreme Court's ruling in United Commercial Bank Ltd. v. CIT. These precedents established that income from "interest on securities" falls under a specific head and cannot be reclassified under another head, even if the securities are held as trading assets.
The court also examined Shree Jagdish Mills Ltd. v. CIT, where securities were held by the Accountant-General in his own right, not on behalf of the assessee. This case was deemed inapplicable as the facts differed significantly from the present case.
Additionally, CIT v. Chugandas & Co. was discussed, which reaffirmed that "interest on securities" is a distinct head of income and cannot be reclassified, even if the securities are business assets. This case did not support the assessee's argument for reclassification.
3. Entitlement to Set Off Income Against Carried Forward Business Loss:
The assessee argued that the income from these securities should be set off against a carried forward business loss, implying it was business income. The court dismissed this argument, stating that the classification of income for set-off purposes does not alter its nature for tax assessment. The court clarified that even if the set-off was permissible, it would not change the fact that the income should be computed and taxed under the head "interest on securities."
Conclusion:
The court concluded that the interest received on Government securities, even when collected by banks on behalf of the assessee, retains its nature as "interest on securities" and should be taxed accordingly. The question referred to the court was answered in the negative and in favor of the Revenue. The respondent assessee was ordered to pay the costs of these references to the applicant-Commissioner in one set.
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1985 (10) TMI 65
Issues involved: The judgment involves the question of whether bonus and depreciation on a flat provided to the director of the assessee-company constitute a perquisite under section 40(a)(v) of the Income-tax Act, 1961.
Bonus Issue: The judgment refers to the assessment year 1971-72 and states that the Tribunal was correct in holding that bonus is not a perquisite under section 40(a)(v) of the Income-tax Act, 1961, based on a previous court ruling.
Depreciation on Flat Issue: Concerning the assessment year 1970-71, the judgment discusses the case where a flat was rented by the assessee and provided to its director. The Income-tax Officer disallowed depreciation claimed on the flat as a perquisite under section 40(a)(v). However, the Appellate Assistant Commissioner and the Income-tax Appellate Tribunal both ruled in favor of the assessee.
Legal Interpretation: The judgment delves into the interpretation of section 40(a)(v) of the Income-tax Act, 1961. The Revenue argued that depreciation allowance falls within the scope of this section, citing a judgment from the Kerala High Court. The assessee contended that depreciation allowance is not covered by section 40(a)(v) based on the wording of the provision.
Memorandum Explanation: The judgment also examines the Memorandum explaining the provisions of the Finance Bill, 1968, which aims to limit expenditure or allowance admissible to the employer in respect of assets provided to employees free of charge. The assessee's counsel highlighted this explanation to support their argument.
Decision: The court concluded that bonus is not a perquisite under section 40(a)(v) based on precedent. Regarding the depreciation on the flat provided to the director, the Tribunal should have allowed it only to the extent not covered by section 40(a)(v). The assessee was directed to pay the costs of the reference to the Revenue.
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1985 (10) TMI 64
Issues involved:
The judgment involves three main Issues:
1. Whether the assessee was entitled to depreciation on certain expenses capitalized in earlier years.
2. Whether the assessee was entitled to relief under section 91 of the Income-tax Act in respect of dividends from the United Kingdom.
3. Whether a specific sum could be allowed as a deduction in the assessment year 1965-66.
Issue 1 - Depreciation on Capitalized Expenses:
The court agreed that the assessee was entitled to depreciation on certain expenses based on relevant judgments without further elaboration.
Issue 2 - Relief under Section 91:
The court also agreed that the assessee was entitled to relief under section 91 based on applicable Supreme Court judgment without elaboration.
Issue 3 - Excise Duty Deduction:
The case involved excise duty on carbon dioxide used in manufacturing soda ash. The Central Government exempted part of the excise duty, and the Supreme Court later quashed the demand notices served on the assessee. The assessee collected excise duty from purchasers but did not pay it pending the writ petition. The sums collected were later credited as income and taxed. The Income-tax Officer included these sums in the assessable income, but the Appellate Assistant Commissioner allowed deduction for one of the years. The Tribunal upheld the deduction, stating that the liability existed until quashed by the Supreme Court. The court referenced relevant judgments to support the deduction, concluding that the sum was rightly allowed as a deduction.
In summary, the court answered all three questions in the affirmative and in favor of the assessee, directing the Revenue to pay the costs of the reference to the assessee.
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1985 (10) TMI 63
Issues:
Validity of partial partition of Hindu undivided family assets between a widowed mother and her son under section 171 of the Income-tax Act, 1961.
Analysis:
The case involved a Hindu undivided family with Ram Chander Paliwal as the karta, who passed away in 1963, leaving behind his wife, Ram Narain, and their minor sons and daughter. Ram Narain continued as the karta, and a partnership firm was formed in 1965 with him as a partner. The family claimed partial partition under section 171 of the Income-tax Act, 1961, which was initially denied by the Income-tax Officer citing incorrect description of Ram Piari as a coparcener and the belief that a widowed mother could not compel for a partition. The Appellate Assistant Commissioner allowed the partition, but the Income-tax Appellate Tribunal reversed the decision, stating that Ram Piari could not be a coparcener and relied on precedents to deny the partition claim.
The High Court analyzed the case and emphasized that the dispute was regarding the validity of partial partition of Hindu undivided family assets under section 171 of the Income-tax Act, not the existence of the Hindu undivided family itself. It was established that a Hindu undivided family can be a partner in a firm, and since the family continued to be assessed as such till 1973, a partial partition was permissible. The court held that even if Ram Narain was the sole male coparcener, he could effect the partition, and the law did not prevent a Hindu undivided family comprising a mother and her son from partitioning their assets. The court concluded that the Tribunal was incorrect in denying the valid partial partition between the widowed mother and her son, ruling in favor of the assessee and against the Department.
In summary, the High Court determined that under section 171 of the Income-tax Act, a valid partial partition of Hindu undivided family assets between a widowed mother and her son was permissible, irrespective of the specific composition of the family members. The court's decision highlighted the distinction between the assessment of the family as a Hindu undivided family for tax purposes and the ability to partition their assets, ultimately ruling in favor of the assessee and allowing the partial partition claim.
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1985 (10) TMI 62
Issues:
Validity of partial partition of Hindu undivided family assets between a widowed mother and her son under section 171 of the Income-tax Act, 1961.
Analysis:
The case involved the validity of a partial partition of Hindu undivided family assets between a widowed mother and her son under section 171 of the Income-tax Act, 1961. The dispute arose when the Income-tax Officer rejected the claim for partial partition made by the Hindu undivided family, citing that a widowed mother could not compel for a partition and that at least two coparceners were essential for claiming partition. The Appellate Assistant Commissioner allowed the appeal, stating that a female heir could claim partition of joint Hindu family property. However, the Income-tax Appellate Tribunal disagreed, emphasizing that the mother could not claim partition as long as the sons remained united, and since the son could not claim partition against himself, no partition could take place. The Tribunal also noted that the Hindu Women's Right to Property Act, 1937, which granted widows the right to claim partition, was repealed by the Hindu Succession Act, 1956.
The Tribunal further distinguished previous decisions and held that a Hindu female had no right to claim partition of Hindu undivided family property. The Tribunal's decision was based on the fact that the 1937 Act was repealed, and section 6 of the Hindu Succession Act, 1956, did not grant a female the right to claim partition. The Tribunal referred to a decision of the Rajasthan High Court, stating that a Hindu female had no such right. The Tribunal's decision was challenged, and the High Court analyzed the basic facts of the case, emphasizing that the Hindu undivided family continued to be assessed as such, and a partial partition of the family assets was valid. The High Court concluded that under section 171 of the Income-tax Act, there was no impediment for the assessee to claim partial partition, even if the family consisted of a widowed mother and her son. The Court held that the Tribunal was not correct in denying the validity of the partial partition and ruled in favor of the assessee.
In summary, the High Court's judgment clarified that under section 171 of the Income-tax Act, a Hindu undivided family could validly effect a partial partition of its assets, even if the family composition included a widowed mother and her son. The Court emphasized that the Income-tax law did not prohibit such a partition, and the Tribunal's decision to deny the partition was incorrect. The judgment favored the assessee, ruling against the Department's appeal and upholding the validity of the partial partition.
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1985 (10) TMI 61
Issues:
- Allowability of legal expenses against dividend income under the Income-tax Act, 1961.
Analysis:
The case involved a dispute regarding the allowance of legal expenses of Rs. 11,500 against dividend income of the assessee under the Income-tax Act, 1961. The assessee, a public limited company engaged in the manufacture and sale of beer, claimed the legal expenses as a deduction for the assessment year 1971-72. The Income-tax Officer disallowed the claim, which was upheld by the Appellate Assistant Commissioner and the Tribunal based on previous disallowances. The Tribunal held that the legal expenses were not incurred for the business of the assessee or for earning dividends, thus not eligible for deduction.
The legal expenses were related to proceedings before the Calcutta High Court under section 186 of the Companies Act, 1956, involving a dispute between the assessee and its subsidiary company. The court observed that the purpose of the application filed by the assessee was to remove directors and take over control of the subsidiary company, not for the business of the assessee or to declare dividends. The court emphasized that legal expenses must be incurred in connection with the assessee's own business profits to be eligible for deduction under section 37(1) of the Act.
The assessee argued that the legal expenses were incurred to safeguard its investment and for earning dividends, citing various legal precedents. However, the court distinguished those cases, emphasizing that the expenses in the present case were not related to the business of the assessee but arose from a domestic quarrel with the subsidiary company. The court concluded that the legal expenses were not incurred wholly and exclusively for earning dividends, thus not allowable as a deduction against dividend income.
In light of the above analysis, the court answered the question in favor of the Revenue, affirming that the legal expenses were not eligible for deduction against the dividend income of the assessee. The parties were directed to bear their own costs in the circumstances of the case.
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1985 (10) TMI 60
Issues Involved:
The judgment involves determining whether the payment made by the assessee to various parties during the assessment year 1969-70 was based on breach of contracts and whether it constituted speculative loss within the meaning of section 43(5) of the Income-tax Act, 1961.
Details of the Judgment:
*Issue 1: Breach of Contracts and Speculative Loss*
The assessee, engaged in the sale of wool-tops and yarn manufacture, paid compensation for non-fulfilling contracts due to unavoidable reasons. The Income-tax Officer disallowed the compensation as speculative. The Appellate Assistant Commissioner accepted the claim as liquidated damages, which was upheld by the Tribunal. The Tribunal concluded that the payment was for breach of contract and allowable as a trading liability, not speculative loss. The Tribunal relied on previous court decisions to support its stance.
*Issue 2: Legal Interpretation of Speculative Transaction*
The Tribunal referred two questions to the High Court regarding the nature of the payment made by the assessee. The High Court analyzed the legal position of a speculative transaction under section 43(5) of the Act. It considered the definition of a settled contract and the distinction between settling a dispute and settling a contract. The High Court emphasized the importance of evidence in determining whether a transaction is speculative or not.
*Issue 3: Precedents and Legal Arguments*
The High Court reviewed various legal precedents cited by both the Department and the assessee. It discussed the relevance of settlements in disputes and contracts in determining the speculative nature of a transaction. The Court highlighted the need for evidence to establish the reasons for non-performance of contracts and the calculation of damages.
*Conclusion:*
The High Court held that the payment made by the assessee was speculative in nature under section 43(5) of the Act. It disagreed with the Tribunal's decision and ruled in favor of the Department. The High Court emphasized the importance of evidence and legal interpretation in determining the speculative nature of transactions. Both questions were answered in the negative, supporting the Department's position.
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1985 (10) TMI 59
Issues Involved:
1. Whether the Tribunal was correct in law in cancelling the orders of penalty under section 273 of the Income-tax Act, 1961.
Detailed Analysis:
1. Facts and Background:
The case involves a State Government undertaking that filed returns disclosing losses for the assessment years 1963-64 and 1964-65. The Income-tax Officer (ITO) found that the assessee had not complied with section 212(3) of the Income-tax Act, 1961, and imposed penalties under section 273 for not paying advance tax. The penalties were Rs. 94,892 and Rs. 1,13,550 for the respective years. The Appellate Assistant Commissioner (AAC) confirmed these penalties, noting discrepancies in depreciation claims and non-disclosure of interest income. The Tribunal, however, cancelled the penalties, concluding that the assessee had a bona fide belief that no tax was payable, and thus, the penalties were not justified.
2. Tribunal's Findings:
The Tribunal held that the assessee was not aware that its claims of losses would be substantially reduced and that the depreciation claims were initially accepted by the ITO. The Tribunal found no mens rea (guilty intent) in the assessee's actions and noted that the advice given to the assessee regarding depreciation was incorrect. The Tribunal also considered that the interest income was not actually received during the relevant period and would have been offset by previous losses. Therefore, the Tribunal concluded that the assessee had a bona fide belief that no tax was payable and was not required to comply with section 212(3).
3. Legal Analysis:
Under section 212(3), an assessee must submit an estimate of current income and advance tax if the income is likely to exceed a specified amount. Section 273(b) allows penalties if the assessee fails to furnish this estimate without reasonable cause. The Tribunal's finding that the assessee had a bona fide belief of no tax liability amounts to a finding of reasonable cause.
4. Precedents and Legal Principles:
The judgment references several precedents:
- CIT v. S. Teja Singh: This case involved a legal fiction for failure to send an estimate of tax, which is not directly applicable here.
- Kashmir Vastralaya v. CIT: This case established that the initial burden to show a lack of reasonable cause lies with the Revenue.
- H. H. Maharani Sharmishthabai Holkar v. Addl. CIT: This case affirmed that mens rea is not required for penalties under section 273(c).
- Hindustan Steel Ltd. v. State of Orissa: The Supreme Court held that no penalty can be levied where the breach flows from a bona fide belief.
- Addl. CIT v. Roshan Lal Kuthiala: This case established that whether there is a reasonable cause is a question of fact.
- CIT v. Co-operative Cane Development Union Ltd.: This case held that a bona fide belief of income exemption is a reasonable cause for not depositing advance tax.
5. Conclusion:
The Tribunal's decision to cancel the penalties was justified based on the assessee's bona fide belief and consistent pattern of filing returns. It was held that the assessee had reasonable cause for not filing the estimate of advance tax, and hence, no penalty under section 273(b) was leviable. The question was answered in favor of the assessee and against the Revenue.
Judgment:
The Tribunal was correct in law in cancelling the orders of penalty under section 273 of the Income-tax Act, 1961. The parties will bear their own costs.
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1985 (10) TMI 58
Issues Involved:
1. Deduction for items wrongly capitalized under section 32(1)(iii) of the Income-tax Act, 1961.
2. Inclusion of grant-in-aid in computing capital for purposes of deduction under section 84 (now section 80J) of the Income-tax Act.
3. Deduction of debts and liabilities while computing capital for purposes of deduction under section 84 (now section 80J) of the Income-tax Act.
4. Entitlement to depreciation and development rebate on the cost of approach roads.
5. Inclusion of half of the profits of the baby food unit and cheese unit in the computation of capital for purposes of relief under section 84 of the Income-tax Act.
Detailed Analysis:
1. Deduction for Items Wrongly Capitalized under Section 32(1)(iii):
The assessee, a co-operative milk producers' union, claimed a loss under section 32(1)(iii) of the Income-tax Act for non-existing stock discovered during an inventory taken after eighteen years. The Tribunal held that the assessee was not entitled to this deduction, as the items were not "destroyed" in the previous year and were merely found missing during the inventory. The court affirmed this view, stating that the deficiency must be actually written off in the books of the assessee and the articles must be destroyed in the previous year to qualify for the deduction.
2. Inclusion of Grant-in-aid in Computing Capital for Deduction under Section 84 (now Section 80J):
The assessee received grant-in-aid from the Government of Gujarat for purchasing equipment. The Tribunal held that this grant could not be included in the capital computation for deduction purposes under section 84. The court referred to its earlier decision in CIT v. Kaira District Co.op. Milk Producers' Union Ltd. [1979] 116 ITR 319, which held that the grant-in-aid should not be taken into account in computing the capital employed. Thus, questions (2) and (4) were answered in the affirmative, favoring the Revenue.
3. Deduction of Debts and Liabilities while Computing Capital for Deduction under Section 84 (now Section 80J):
The Tribunal had deducted debts and liabilities while computing the capital employed for deduction under section 84. This decision was upheld by the Supreme Court in Lohia Machines Ltd. v. Union of India [1985] 152 ITR 308, which validated the deduction of debts and liabilities under rule 19A(3). Consequently, questions (3) and (5) were answered in the affirmative, favoring the Revenue.
4. Entitlement to Depreciation and Development Rebate on the Cost of Approach Roads:
The Tribunal allowed both depreciation and development rebate for the cost of approach roads, considering them as "plant" under sections 32 and 33. However, the court, referring to the Elecon Engineering Co. Ltd. case [1974] 96 ITR 672, held that roads do not qualify as "plant" as they are part of the premises and not used directly in business operations. The court concluded that the approach roads should be treated as buildings for depreciation purposes but not as plant for development rebate. Thus, questions (6) and (8) were answered in the negative, against the assessee.
5. Inclusion of Half of the Profits of Baby Food Unit and Cheese Unit in Capital Computation:
The Tribunal included half of the profits from the baby food and cheese units in the capital computation for section 84 relief. This decision was consistent with the court's earlier ruling in CIT v. Elecon Engineering Co. Ltd. [1976] 104 ITR 510. Therefore, question (7) was answered in the affirmative, favoring the assessee.
Conclusion:
The court's judgment addressed multiple issues concerning the computation of capital and the eligibility for deductions and rebates under the Income-tax Act. The decisions were guided by precedents and interpretations of relevant statutory provisions, ultimately favoring the Revenue on most counts except for the inclusion of profits in capital computation.
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1985 (10) TMI 57
Issues Involved:
1. Imposition of penalty u/s 271(1)(c) of the Income-tax Act, 1961.
2. Applicability of penalty provisions based on the law in force.
Summary:
Issue 1: Imposition of Penalty u/s 271(1)(c)
- The Tribunal upheld the imposition of penalty on the sums of Rs. 10,000 and Rs. 20,000 shown as gifts to the assessee's minor son. The Tribunal found that the story of gifts was a contrivance to escape assessment and concluded that the assessee attempted to defraud the Revenue. The penalty was justified as the assessee failed to substantiate her claims in the penalty proceedings.
- The Tribunal set aside the penalty concerning the unexplained investment of Rs. 10,393 and the income of Rs. 4,826 from the house in the name of the minor son, stating that these sums did not attract penalty. The Tribunal believed that the assessment on an estimate basis could not justify the imposition of penalty.
Issue 2: Applicability of Penalty Provisions
- The Tribunal's decision that the penalty should be imposed according to the law in force on April 1, 1966, was incorrect. The Supreme Court in Brij Mohan v. CIT [1979] 120 ITR 1 established that penalties should be imposed based on the law in force at the time of filing the return, which in this case was July 9, 1968.
Detailed Judgment:
Assessee's Appeal:
- The assessee, a lady doctor, did not file a return for the assessment year 1966-67 until a notice u/s 148 was issued. The return disclosed an income of Rs. 23,172, including salary, professional income, and other sources.
- The Income-tax Officer added sums of Rs. 10,000, Rs. 20,000, unexplained investment of Rs. 10,393, and income from the house of Rs. 4,826 to the total income, resulting in a difference of 20% between the returned and assessed income, leading to penalty proceedings u/s 271(1)(c).
- The Tribunal upheld the penalty on Rs. 10,000 and Rs. 20,000, rejecting the assessee's claim of gifts, but set aside the penalty on Rs. 10,393 and Rs. 4,826.
Revenue's Appeal:
- The Revenue challenged the Tribunal's decision to delete the penalty on Rs. 10,393 and Rs. 4,826, arguing that even assessments based on estimates could attract penalties.
- The High Court agreed with the Revenue that assessments by estimate could attract penalties, but on the special facts of this case, upheld the Tribunal's decision to delete the penalty on Rs. 10,393 due to the possibility of an honest difference of opinion in construction costs.
- The High Court disagreed with the Tribunal's deletion of the penalty on Rs. 4,826, stating that the assessee knew the income from the house property was her own and should have disclosed it.
Final Decision:
- The High Court answered the questions in favor of the Revenue concerning the imposition of penalties on Rs. 10,000 and Rs. 20,000 and the applicability of the penalty law in force at the time of filing the return.
- The High Court upheld the Tribunal's decision to delete the penalty on Rs. 10,393 but reversed the decision concerning Rs. 4,826, imposing the penalty.
- The references were answered accordingly, with no order as to costs.
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1985 (10) TMI 56
Issues Involved:
1. Whether the sums of Rs. 5,90,050 and Rs. 8,70,891 are liable to be treated as dividends u/s 2(6A)(e) of the Indian Income-tax Act, 1922 for the assessment years 1958-59 and 1959-60.
Summary:
Issue 1: Treatment of Sums as Dividends u/s 2(6A)(e)
The common question raised was whether the sums of Rs. 5,90,050 and Rs. 8,70,891 are liable to be treated as dividends u/s 2(6A)(e) of the Indian Income-tax Act, 1922 for the assessment years 1958-59 and 1959-60. The assessee was a shareholder of Krishna Steel Industries Pvt. Ltd. and Steel Industries of Hindustan Pvt. Ltd., both of which were not companies in which the public were substantially interested.
For the assessment year 1958-59, the Income-tax Officer noted that the net amount of the debit of the assessee came to Rs. 12,71,289, with reserves and surpluses of the company at Rs. 5,90,050. He treated this sum as "deemed dividends" u/s 2(6A)(e). For the assessment year 1959-60, the debit amount was Rs. 8,70,891, with reserves and surpluses at Rs. 9,82,375, and the entire amount was treated as "deemed dividends."
The Appellate Assistant Commissioner, guided by the Tribunal's order for the assessment year 1957-58, held that the accounts were purely by way of temporary mutual accommodation and the overdrawn amounts could not be treated as dividends. The Tribunal, noting no fresh facts or arguments, upheld this view.
The Tribunal's order for the assessment year 1957-58 found that the transactions were purely by way of temporary mutual accommodations and did not represent loans or advances to a shareholder. This was accepted by the Revenue in a previous court decision (CIT v. Ramchand Jethmal [1978] 115 ITR 384).
Mr. Jetly, counsel for the Revenue, argued that the accumulated profits should be those shown in the company's balance-sheet on the last or first day of the company's accounting year. However, the Income-tax Officer's orders did not state the company's accounting year, and it was unclear how the accumulated profits were calculated.
The Supreme Court in Navnit Lal C. Javeri v. K. K. Sen, AAC [1965] 56 ITR 198 and this court in CIT v. P. K. Badiani [1970] 76 ITR 369 held that for the purposes of section 2(6A)(e), the company's accumulated profits must be determined on the day the loan or advance to the shareholder is made. The Income-tax Officer failed to compute the amounts of the deemed dividends on this basis, leading to the conclusion that his orders on this aspect must fall.
The question was answered in the affirmative and in favor of the assessee, with the Revenue ordered to pay the costs of the reference.
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1985 (10) TMI 55
Issues involved: Determination of whether income from lease and license of business premises should be assessed under "Income from property" or "Income from other sources" for the assessment year 1969-70.
Summary:
The assessee constructed a building named "Meher Chambers" with leases to three tenants and agreements for air-conditioning facility. Initially declared income under "Income from property" and "Income from other sources," later revised to all under "Income from other sources." Dispute arose on how to assess income from leases and agreements. Revenue argued no letting of installation, while assessee claimed inseparable lettings. Section 56(2)(iii) of Income-tax Act was analyzed, along with precedents like Sultan Brothers' case and D. C. Shah v. CIT. High Court concluded no letting of installation occurred, thus income to be taxed as income from property, not from other sources.
In-depth analysis of agreements and relevant legal provisions was conducted. Section 56(1) and 56(2) of the Income-tax Act were scrutinized to determine the taxability of income from agreements. Arguments were presented regarding depreciation allowance and control of the installation by the assessee. The court emphasized the distinction between letting the installation and allowing tenants to utilize the facility. Precedents like Sultan Brothers' case and CIT v. D. L. Kanhere were referenced to establish the inseparability of lettings in similar cases.
The court highlighted the significance of possession transfer in a lease and the absence of such transfer in the present case. Decisions from Karnataka, Kerala, and Calcutta High Courts were cited to support the conclusion that no letting of the air-conditioning installation occurred under the agreements. Consequently, income derived from the leases was deemed taxable as income from property, not from other sources. The judgment answered the reference question accordingly, with no order as to costs.
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1985 (10) TMI 54
Issues: Reassessment proceedings conclusion upon finalization of settlement petition - Validity of reassessment post settlement petition finalization.
Analysis:
The judgment delivered by BHARUCHA J. and KANIA J. addressed the common issue raised by the Revenue regarding the justification of the Tribunal's finding on the conclusion of reassessment proceedings upon the finalization of a settlement petition on June 5, 1968. The case involved assessment years 1957-58 and 1958-59, with the Income-tax Officer initiating reassessment proceedings under section 147(a) read with section 148 of the Income-tax Act, 1961, based on the belief that hundi borrowings of the assessee represented concealed income chargeable to tax.
The assessee, in response, submitted a settlement petition to the Commissioner of Income-tax, Bombay, addressing the hundi borrowings issue and proposing a settlement for the assessment years 1957-58 to 1964-65. This settlement petition was finalized on June 5, 1968, with the determination of escaped income and the agreed tax payment schedule. Subsequently, a statement was made to the Income-tax Officer on August 19, 1969, regarding incorrect depreciation claimed on the cinema building during the original assessment.
The Tribunal ruled that the reassessment proceedings had concluded upon the finalization of the settlement petition on June 5, 1968. As the issue of excessive depreciation arose post-settlement finalization, the Income-tax Officer could not reassess the item without issuing a fresh notice under section 147(a) read with section 148 of the Income-tax Act, 1961. The court agreed with the Tribunal's decision, emphasizing that the reassessment proceedings, primarily concerning the hundi borrowings, were deemed concluded upon settlement finalization, barring the reassessment of new issues post-settlement.
In conclusion, the court upheld the Tribunal's decision, affirming that the reassessment proceedings were concluded with the finalization of the settlement petition. Therefore, the Income-tax Officer's reassessment order post-settlement finalization was deemed invalid. The judgment favored the assessee, answering the raised question in the affirmative and in favor of the assessee, with no specific order regarding costs.
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1985 (10) TMI 53
The High Court of Bombay ruled in favor of the assessee, allowing a deduction of Rs. 2,400 under section 16(iv) of the Income-tax Act, 1961. The court found that the amount of Rs. 200 per month paid to the assessee for travelling expenses fell short of his actual expenses, making him eligible for the deduction. The judgment was delivered by Judges Kania and Bharucha.
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1985 (10) TMI 52
Issues Involved:
1. Taxability of the receipt of Rs. 1,12,500 u/s 10(3) of the Income-tax Act, 1961.
2. Nature of the receipt of Rs. 71,900 and its chargeability to capital gains tax.
3. Nature of the receipt of Rs. 40,600 and its classification as revenue receipt.
Judgment Summary:
Issue 1: Taxability of Rs. 1,12,500 u/s 10(3) of the Income-tax Act, 1961
The court examined whether the receipt of Rs. 1,12,500 by the assessee was of a casual and non-recurring nature and thus not taxable. The argument was based on the premise that the assessee received his share in the partnership, implying no transfer and hence no tax liability. The court found that the consent terms indicated the retirement of the assessee from the partnership rather than its dissolution. Consequently, the court held that there was a transfer of the assessee's share in the partnership, making the receipt taxable. The first question was answered in the negative and in favor of the Revenue.
Issue 2: Nature of the receipt of Rs. 71,900 and its chargeability to capital gains tax
The court considered whether the receipt of Rs. 71,900 was a 'capital receipt' and if Rs. 31,200 or any part thereof was chargeable to capital gains tax. The court referred to the decision in CIT v. Srinivasa Setty and Evans Fraser & Co. Ltd. to conclude that the amount attributable to goodwill was not liable to capital gains tax. The Tribunal was directed to bifurcate the amount received on account of goodwill and other assets. The second question was answered as follows: the part of Rs. 31,220 attributable to goodwill shall not be liable to capital gains tax, while the balance amount shall be liable to capital gains tax.
Issue 3: Nature of the receipt of Rs. 40,600 and its classification as revenue receipt
The court examined whether the sum of Rs. 40,600 payable to the assessee was a capital or revenue receipt. The amount was for the assessee's share in the outstandings and dues of the firm earned before dissolution but received after. The court found it to be a payment on account of the firm's earnings and thus a revenue receipt. The third question was answered in the affirmative and in favor of the Revenue.
Conclusion:
The court answered the questions as follows:
1. In the negative and in favor of the Revenue.
2. That part of Rs. 31,220 (Rs. 71,900 less Rs. 40,680) attributable to goodwill shall not be liable to capital gains tax. The balance amount shall be liable to capital gains tax.
3. In the affirmative and in favor of the Revenue.
The assessee was directed to pay the costs of the reference to the Revenue.
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