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Showing 161 to 180 of 242 Records
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1993 (1) TMI 87
Issues:
1. Calculation of customs duty based on the date of cargo clearance.
2. Impact of the Supreme Court decision on customs duty calculation.
3. Assurance given by customs authorities regarding import general manifest.
Analysis:
1. The case involved a dispute over the calculation of customs duty for the clearance of imported cargo. Respondent No. 1 had ordered mild steel sheets from foreign suppliers, and upon arrival at Bombay Port, faced operational challenges in unloading the cargo, leading to a delay in clearance.
2. The customs authorities claimed a higher rate of duty based on an increase that occurred after the vessel returned to Bombay. The appellants relied on a Supreme Court decision (Bharat Surfactants v. Union of India) to support their argument that the duty rate applicable is that prevailing at the time of cargo clearance for home consumption, not at the time of arrival.
3. The respondents argued that the customs authorities had permitted the vessel to overcarry the cargo to other Indian ports with the assurance that the same import general manifest could be used upon return. This assurance, according to the respondents, precluded the customs authorities from demanding a higher duty rate upon the cargo's eventual clearance in December 1982.
4. The High Court upheld the decision of the learned single Judge, emphasizing that the customs authorities' assurance regarding the use of the same import general manifest on the cargo's return was binding. The court found merit in the argument that the appellants were estopped from claiming a higher duty rate due to their prior commitment. Consequently, the appeal was dismissed, and no costs were awarded in the matter.
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1993 (1) TMI 85
The High Court of Judicature at Madras quashed a directive related to classifying cigarette packets under a specific tariff item. The judgment referenced a previous case and held that the directive was not valid, allowing the writ petition.
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1993 (1) TMI 83
Issues:
1. Interpretation of import policy for registered exporters under Appendix 17.
2. Determining whether imported goods fall within the expression "seeds" under REP licences.
3. Validity of redemption fine and penalty imposed by the Additional Collector.
Analysis:
1. The case involved the appellants importing almonds declared as 'seeds of almonds' under various REP licences. Customs authorities issued a show cause notice for potential confiscation under Section 111 of the Customs Act, citing reasons related to the nature of the imported goods and their nexus to export products. The Additional Collector held the import invalid, leading to a penalty and redemption fine. The Single Judge upheld this decision, referring to provisions of the Customs Tariff Act. The appellants challenged this decision, arguing that the imported goods qualified as seeds under the licences.
2. The High Court analyzed the import policy outlined in Appendix 17, emphasizing the requirement for imported items to have a direct nexus with the exported goods. The policy aimed to permit only those items used in the manufacture of export products. The Court noted specific conditions for REP licences, including the submission of a list of raw materials actually used in manufacturing exported products. The Court highlighted that the term "seeds" in the policy referred to seeds of fresh fruits, vegetables, and flowers intended for germination or plantation, not merely as a generic term.
3. The Court rejected the appellants' argument that the generic term "seeds" encompassed all types of seeds, including almonds, regardless of their use. It emphasized that the limitations on seed imports were intrinsic to the policy and must align with the export products specified in the licences. Referring to a previous Division Bench decision, the Court distinguished cases where generic terms like Ethyl Alcohol were permitted without restrictions, unlike the specific restrictions on seed imports under the policy. Consequently, the Court upheld the decisions of the Additional Collector and the Single Judge regarding the invalidity of the import.
4. Regarding the redemption fine and penalty, the Court considered the appellants' request for modification due to the heavy imposition. After hearing arguments from both parties, the Court exercised discretion to reduce the redemption fine and penalty to 50% of the original amounts levied by the Additional Collector. The Court noted that the appellants had already paid 50% of the fines, which was deemed sufficient in the circumstances. The appeal was partly allowed, upholding previous decisions but reducing the financial penalties imposed.
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1993 (1) TMI 81
Issues Involved:
1. Whether the defendants were the importers or owners of the goods.
2. Whether the suit was barred by the law of limitation.
3. Whether the defendants were liable for wharfage and demurrage charges.
4. Interpretation of the term 'owner' under the Bombay Port Trusts Act and the Major Port Trusts Act.
5. Liability of the consignee or agent for the custody of goods.
6. Applicability of Supreme Court judgments on the liability of the consignee.
Issue-wise Detailed Analysis:
1. Whether the defendants were the importers or owners of the goods:
The trial Judge concluded that the defendants were not the importers or owners of the goods. However, the appellate court found this conclusion erroneous. The term 'owner' under Section 3(5) of the Bombay Port Trusts Act and Section 2(o) of the Major Port Trusts Act includes any consignor, consignee, shipper, or agent for the sale or custody of such goods. The defendants were deemed to be the consignees or agents for the custody of the goods, thus falling within the definition of 'owner'. The endorsement on the bill of lading in favor of defendant No. 1 established them as the consignee, transferring all rights from the original consignee (Indian Overseas Bank) to the defendants.
2. Whether the suit was barred by the law of limitation:
The trial Judge held that the suit was not barred by the law of limitation. This finding was not specifically contested in the appeal, and the appellate court did not address this issue further, implicitly accepting the trial Judge's conclusion.
3. Whether the defendants were liable for wharfage and demurrage charges:
The appellate court held that the defendants, being the owners of the consignment under the statutory definition, were liable for the wharfage and demurrage charges. The defendants had incurred expenses and liabilities related to the consignment, and there was no evidence of reimbursement from M/s. Laxmi Engineering Company. The defendants' actions and financial commitments indicated their ownership and responsibility for the goods.
4. Interpretation of the term 'owner' under the Bombay Port Trusts Act and the Major Port Trusts Act:
The term 'owner' under both Acts includes any consignor, consignee, shipper, or agent for the sale or custody of such goods. The appellate court emphasized that this definition is inclusive and artificial, focusing on the role and responsibilities rather than the title to the goods. The endorsement on the bill of lading made defendant No. 1 the consignee, thus fitting the definition of 'owner' under the Acts.
5. Liability of the consignee or agent for the custody of goods:
Even if the defendants were not considered consignees, they could still be held liable as agents for the custody of the goods. The defendants had secured an endorsement on the bill of lading to obtain custody of the consignment, making them responsible for the charges. The appellate court found considerable merit in this contention, further supporting the defendants' liability.
6. Applicability of Supreme Court judgments on the liability of the consignee:
The defendants cited Supreme Court judgments to argue that the Port Trust authorities could only recover charges from the ship-owner or steamer-agent, not the consignee. However, the appellate court distinguished these cases, emphasizing that the Port Trust authorities render services to the goods and the owner, making the owner liable for charges. The court rejected the argument that the consignee's liability could be negated by pointing to the vessel or steamer-agent.
Conclusion:
The appellate court allowed the appeal, setting aside the trial Judge's judgment and decree. The defendants were ordered to pay the plaintiffs Rs. 1,58,345.10 with interest at 12% per annum from the date of the suit until realization, along with the costs of the suit and the appeal. The court affirmed the defendants' liability for the charges as owners of the consignment under the statutory definitions and general law principles.
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1993 (1) TMI 79
Whether the duty of excise in respect of Tariff Item Nos. 18A(ii), 18(III)(ii) and 18E is to be levied and collected on the weight of the unsized yarn and not on the basis of the weight of the sized yarn?
Held that:- J.K. Cotton Mills will be applicable to all types of cases under Items 18-I, 18-III and 18E. The result is that all the aforesaid writ petitions are accepted and the impugned show cause notices are quashed.
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1993 (1) TMI 77
Whether the interest of a partner in partnership assets is to be treated as movable property or both movable and immovable depending on the character of the property for the purposes of section 17 of the Registration Act?
Held that:- The award read as a whole makes it absolutely clear that the arbitrators had confined themselves to the properties belonging to the two firms and had scrupulously avoided other properties in regard to which they did not reach the conclusion that they belonged to the firm. On a correct reading of the award, we are satisfied that the award seeks to distribute the residue after settlement of accounts on dissolution. While distributing the residue the arbitrators allocated the properties to the partners and showed them in the schedules appended to the award. We are, therefore, of the opinion that on a true reading of the award as a whole, there is no doubt that it essentially deals with the distribution of the surplus properties belonging to the dissolved firms. The award, therefore, did not require registration under section 17(1) of the Registration Act. Appeal allowed.
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1993 (1) TMI 76
The Supreme Court dismissed the appeals citing the precedent set in Second ITO v. Stumpp, Schuele and Somappa P. Ltd. [1991] 187 ITR 108. No costs were awarded.
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1993 (1) TMI 75
The Supreme Court dismissed the appeal with no order as to costs after finding no reason to differ from the High Court's view. The case was heard by M. N. Venkatachaliah and G. N. Ray JJ. The appellant was represented by G. Venhateshwar Rao and A. V. Rangam, Advocates, while the respondents were represented by Ms. A. Subhashini, Advocate. (1993 (1) TMI 75 - SC Order)
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1993 (1) TMI 74
The Supreme Court dismissed the appeals based on the pronouncement in Garden Silk Weaving Factory v. CIT [1991] 189 ITR 512, without any order as to costs. (1993 (1) TMI 74 - SC Order)
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1993 (1) TMI 73
The Supreme Court dismissed the appeal in C.A. Nos. 1020-21 of 1977 as the issues were covered by earlier court decisions. No costs were awarded. (1993 (1) TMI 73 - SC Order)
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1993 (1) TMI 72
The Supreme Court dismissed the appeal citing a previous judgment in CIT v. Sun Engineering Works P. Ltd. [1992] 198 ITR 297. No costs were awarded.
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1993 (1) TMI 71
Issues Involved:
1. Prosecution of a company u/s 276C and 277 of the Income-tax Act.
2. Validity of sanction accorded by the Commissioner of Income-tax.
3. Allegations against the company to implicate other accused persons.
4. Principles of natural justice in granting sanction.
Summary of Judgment:
Issue 1: Prosecution of a company u/s 276C and 277 of the Income-tax Act
The petitioners argued that a company, being a juristic person, cannot be imprisoned and thus cannot be prosecuted under sections 276C and 277 of the Income-tax Act. The court referred to various High Court decisions, including Modi Industries Ltd. v. B. C Goel, which stated that a company cannot be subjected to bodily punishment or imprisonment. The court concluded that prosecuting a company under these sections is unpurposeful since a company cannot be imprisoned, and thus the proceedings against the company (A-1) are quashed.
Issue 2: Validity of sanction accorded by the Commissioner of Income-tax
The petitioners contended that the sanction by the Commissioner did not specifically grant sanction but only recorded satisfaction about the commission of the offences. The court held that the sanction order, when read as a whole, indicated that sanction was indeed accorded, and thus the order is not vitiated on this ground.
Issue 3: Allegations against the company to implicate other accused persons
The petitioners argued that the complaint did not allege that the company contravened any provisions of law, which is necessary to make other accused persons liable. The court found that the complaint did contain detailed allegations against the company (A-1) and how the other accused (A-2 to A-4) were involved. Thus, this contention was rejected.
Issue 4: Principles of natural justice in granting sanction
The petitioners argued that the principles of natural justice were violated as they were not given an opportunity to be heard before the sanction was accorded. The court agreed that the principles of natural justice must be followed, especially when provisions for compounding offences exist. The court held that the sanctioning authority should have given the petitioners an opportunity to be heard, and thus, the proceedings against all accused (A-1 to A-4) are quashed. However, the Commissioner is at liberty to reconsider the sanction after giving the petitioners a reasonable opportunity to be heard.
Conclusion:
The court quashed the proceedings against the company (A-1) under sections 276C and 277 of the Income-tax Act, as a company cannot be imprisoned. The proceedings against all accused (A-1 to A-4) were also quashed due to the violation of principles of natural justice in granting sanction. The Commissioner may reconsider the sanction after providing a reasonable opportunity to the petitioners to be heard.
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1993 (1) TMI 70
The High Court of Gujarat held that goodwill generated in a newly commenced business is not liable to capital gains tax. The judgment was based on the decision of the Supreme Court in CIT v. B. C. Srinivasa Setty [1981] 128 ITR 294. The court answered question No. 1 in the negative, in favor of the assessee, and refused to answer questions 2 and 3.
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1993 (1) TMI 69
Issues:
- Imposition of penalty under section 271(1)(c) of the Income-tax Act, 1961
- Justification of penalty upheld by the Appellate Tribunal
- Validity of penalty proceedings initiated by the Income-tax Officer
- Requirement of establishing mens rea in penalty proceedings
Analysis:
The judgment of the High Court pertains to the imposition of a penalty under section 271(1)(c) of the Income-tax Act, 1961. The case involved an assessee, a registered firm engaged in the cotton and cotton seeds business, who paid a sum to an employee as profit earned from transactions in cotton. The Income-tax Officer disallowed the claim for deduction made by the assessee and treated the amount as income, leading to the imposition of a penalty. The Appellate Tribunal upheld the penalty, prompting the assessee to challenge the decision before the High Court.
The High Court scrutinized the reasons provided by the Tribunal for deeming the claim as false and amounting to concealment under section 271(1)(c) of the Act. The Tribunal primarily relied on factors such as the absence of a license for the employee to deal in cotton, lack of separate account entries, non-payment of ginning charges, and failure to pay tax by the employee. However, the Court opined that these reasons were not sufficient to establish the claim as false. The Court emphasized that the absence of entries in the employee's account was justifiable due to the lack of a license, and the explanation given by the assessee was consistent with this fact.
Furthermore, the High Court highlighted that the employee had disclosed the income in his tax return, which was accepted by the Income-tax Officer. The Court noted that the assessment of the employee was not a protective assessment, indicating the genuineness of the transaction. The Court also considered the subsequent payment to the employee in the following year as supporting evidence that the transaction belonged to the employee and not the assessee. Based on these findings, the Court concluded that the assessee had not concealed the income, rendering the penalty unjustified.
In conclusion, the High Court ruled in favor of the assessee, holding that the reasons provided by the Tribunal were insufficient to establish the claim as false, and the imposition of the penalty was unwarranted. The Court emphasized the importance of considering all relevant circumstances and evidence before imposing penalties under section 271(1)(c) of the Income-tax Act, 1961.
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1993 (1) TMI 68
Issues involved: Challenge to levy and imposition of additional tax u/s 143(1A)(a) of the Income-tax Act, 1961 by the Rajasthan State Electricity Board (RSEB) and the consequent demand of Rs. 7,67,68,717.
Summary:
The RSEB filed its income return for the financial year 1990-91, showing a significant loss. An intimation was issued under section 143(1A)(a) claiming additional tax, which was later revised. The RSEB filed for rectification and revision under sections 154 and 264 of the Income-tax Act, which were pending. The main issue revolved around the interpretation of section 143(1) and (1A) of the Act, particularly whether additional tax could be levied when the total income did not exceed the declared income due to adjustments. The court analyzed the provisions and cited a similar case where it was held that additional tax applies only when adjustments result in an income exceeding the declared amount, not in cases of loss. The Revenue argued for the legality of charging additional tax even in loss cases, drawing parallels with penalty provisions under section 271(1)(c) of the Act. However, the court upheld the interpretation that additional tax can only be charged when adjustments lead to an increase in income beyond the declared amount. As the RSEB had shown a loss and adjustments did not result in increased income, the court allowed the writ petition, quashing the levy of additional tax and related intimation.
This judgment clarifies the conditions under which additional tax can be levied under section 143(1A)(a) of the Income-tax Act, emphasizing that such tax is applicable only when adjustments result in an increase in income beyond the declared amount, not in cases of losses.
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1993 (1) TMI 67
Issues Involved:
1. Registration of firms under the Kerala Agricultural Income-tax Act, 1950, and the Income-tax Act, 1961.
2. Specification of individual shares of partners in the partnership deed.
3. Interpretation of section 27 of the Kerala Agricultural Income-tax Act, 1950, and section 184 of the Income-tax Act, 1961.
4. Consideration of extraneous evidence and provisions of other statutes for determining the shares of partners.
Issue-wise Detailed Analysis:
1. Registration of Firms under the Kerala Agricultural Income-tax Act, 1950, and the Income-tax Act, 1961:
The central issue is whether the registration of firms under the Kerala Agricultural Income-tax Act, 1950, and the Income-tax Act, 1961, requires the partnership deed to specifically mention the individual shares of partners in losses. The court examined various precedents and statutory provisions to determine if the absence of such specification disqualifies a firm from registration.
2. Specification of Individual Shares of Partners in the Partnership Deed:
The court reviewed the requirement under section 27 of the Kerala Agricultural Income-tax Act, 1950, and section 184 of the Income-tax Act, 1961, for the partnership deed to specify the individual shares of partners. The court noted the conflicting views among different High Courts and Supreme Court decisions on whether the shares in losses must be explicitly stated in the partnership deed.
The court observed that earlier decisions, such as CIT v. Ithappiri and George [1973] 88 ITR 332 and United Hardwares v. CIT [1974] 96 ITR 348, required explicit mention of loss-sharing ratios. However, later Supreme Court decisions, including Kylasa Sarabhaiah v. CIT [1965] 56 ITR 219 and Parekh Wadilal Jivanbhai v. CIT [1967] 63 ITR 485, suggested a more flexible interpretation, allowing the shares to be inferred from the deed and other relevant documents.
3. Interpretation of Section 27 of the Kerala Agricultural Income-tax Act, 1950, and Section 184 of the Income-tax Act, 1961:
The court examined the statutory language and judicial interpretations of these sections. It noted that while the statutory provisions require the partnership deed to specify the individual shares of partners, this does not necessarily mean an explicit statement of loss-sharing ratios is mandatory. The court emphasized that the intention of the partners, as inferred from the deed and other documents, could suffice.
The court concluded that in the absence of minors admitted to the benefits of the partnership, the shares of losses could be presumed to be in the same ratio as the shares of profits, unless there is a contrary indication in the partnership deed.
4. Consideration of Extraneous Evidence and Provisions of Other Statutes:
The court addressed whether it is permissible to refer to extraneous evidence and provisions of other statutes, such as section 13(b) of the Indian Partnership Act, 1932, to ascertain the shares of partners. The court found that, in the absence of explicit statutory prohibition, it is reasonable to consider such evidence to determine the partners' shares in losses.
The court held that section 13(b) of the Partnership Act, which presumes equal sharing of profits and losses in the absence of a contrary agreement, could be applied to infer the partners' shares in losses when not explicitly stated in the deed.
Conclusion:
The court concluded that a firm cannot be refused registration under section 27 of the Kerala Agricultural Income-tax Act, 1950, or section 184 of the Income-tax Act, 1961, solely because the partnership deed does not explicitly specify the individual shares of partners in losses. The shares can be inferred from the deed, accounts, and other relevant documents, and section 13(b) of the Partnership Act can be applied to presume equal sharing of losses in the absence of a contrary agreement.
Specific Cases:
I.T.R. Nos. 49 of 1982, 586 of 1985, 4 of 1986, and 40 of 1986:
The court found that the partnership deed and other materials indicated equal sharing of profits and losses among the partners. Therefore, the firm was entitled to registration, and the questions were answered in favor of the assessee.
I.T.R. Nos. 10 and 11 of 1987:
The court held that the partnership deeds provided sufficient indications regarding the sharing of profits and losses. The firm was entitled to registration, and the questions were answered in favor of the assessee.
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1993 (1) TMI 66
Issues:
Interpretation of section 18A(6) of the Indian Income-tax Act, 1922 regarding the calculation of interest payable by the assessee.
Analysis:
The judgment pertains to a reference under section 66(1) of the Indian Income-tax Act, 1922, regarding the chargeability of interest under section 18A(6) of the Act for the assessment year 1954-55. Section 18A(6) mandates the payment of interest if the tax paid by the assessee falls short of 80% of the tax determined on the basis of regular assessment. The interest rate is six percent per annum. The key question was whether interest should be calculated after deducting the double income-tax relief admissible to the assessee from the total income-tax demanded, even if the claim for relief was allowed subsequently by the Income-tax Officer under section 154 of the Act.
The court analyzed the provisions of section 18A(6) and emphasized that the tax determined on regular assessment should be the amount calculated by the Income-tax Officer as tax on the assessee's income at the rates specified in the Finance Act, reduced by the amount admissible as double income-tax relief. This interpretation was supported by section 49D of the 1922 Act, which deals with double taxation relief, allowing for a deduction from the Indian income-tax payable by an assessee. Therefore, the interest under section 18A(6) should be determined with reference to 80% of the tax amount reduced by the double taxation relief.
The court concluded that the Tribunal was correct in affirming the Appellate Assistant Commissioner's order that interest payable under section 18A(6) should be calculated after deducting the double income-tax relief from the income tax calculated on the assessee's income. The correctness of the calculation, whether in the original assessment or rectified later, does not alter the fact that the amount payable should be the correct amount determined by the Income-tax Officer on regular assessment. Therefore, the court answered the question in favor of the assessee and against the Revenue, finding no error in the Tribunal's conclusion. No costs were awarded in the case.
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1993 (1) TMI 65
Issues Involved:
1. Determination of the cost of acquisition of land for the purpose of computing capital gains.
2. Applicability of Section 55(3) of the Income-tax Act, 1961.
3. Interpretation of Section 49(1) of the Income-tax Act, 1961.
4. Relevance of amendments introduced by the Taxation Laws (Amendment) Act, 1975.
Detailed Analysis:
1. Determination of the Cost of Acquisition of Land for the Purpose of Computing Capital Gains:
The primary issue in this case is the determination of the cost of acquisition of certain land for the computation of capital gains under the Income-tax Act, 1961. The land in question was initially purchased by four brothers in Gujarat at the rate of one rupee per square yard. Subsequently, the land was impressed with the character of Hindu undivided family (HUF) property and later partially partitioned among the members of the HUF. The land was eventually acquired by the Government, and compensation was paid to the assessee HUF. The assessee computed the capital gain by taking the cost of acquisition as the fair market value on the date of acquisition by the previous owner, resulting in a capital loss.
2. Applicability of Section 55(3) of the Income-tax Act, 1961:
The assessee relied on Section 55(3) to determine the cost of acquisition as the fair market value on the date of acquisition by the previous owner. However, the court found that Section 55(3) applies only when the cost for which the previous owner acquired the property cannot be ascertained. In this case, the cost of acquisition in the hands of the previous owner (the bigger HUF) was nil as the property was received by throwing it into the common hotchpotch. Therefore, Section 55(3) was deemed inapplicable.
3. Interpretation of Section 49(1) of the Income-tax Act, 1961:
Section 49(1) deals with the computation of the cost of acquisition of assets that become the property of the assessee through specific modes, including partial partition of an HUF. The court interpreted that the cost of acquisition should be deemed to be the cost for which the previous owner acquired the property. Since the property was received by the bigger HUF without any cost (by throwing it into the common hotchpotch), the cost of acquisition in the hands of the assessee was also nil. The court referenced the decision in CIT v. Trikamlal Maneklal (HUF) to support this interpretation.
4. Relevance of Amendments Introduced by the Taxation Laws (Amendment) Act, 1975:
The court noted that the insertion of clause (iv) to sub-section (1) of Section 49 and the corresponding amendment to the Explanation were effective from April 1, 1976. Since the assessment year in question was 1972-73, these amendments were not applicable. The court clarified that the assessee did not acquire the property by the mode referred to in clause (iv), and thus, the amendments had no bearing on the case.
Conclusion:
The court concluded that the cost of acquisition of the land in the hands of the assessee HUF was nil, as it was received on partial partition of the bigger HUF, which had acquired it without any cost. Consequently, the computation of capital gain by the assessee, based on the fair market value, was not sustainable. The question referred to the court was answered in the negative, in favor of the Revenue and against the assessee. No order as to costs was made.
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1993 (1) TMI 64
Issues Involved:
1. Whether apprentices employed by the assessee are considered employees for the purpose of initial depreciation u/s 32(1)(iv) of the Income-tax Act, 1961.
2. Whether the sum of Rs. 1,73,849 paid by the assessee to Messrs. Harnischfeger Corporation, U.S.A., is an admissible revenue deduction for the assessment year 1968-69.
Summary:
Issue 1: Apprentices as Employees for Initial Depreciation u/s 32(1)(iv)
The primary contention was whether apprentices could be considered "persons employed in the business" of the assessee, thereby entitling the assessee to initial depreciation at 20% of the actual cost for buildings constructed for their welfare. The Revenue argued that apprentices are merely trainees and not employees, thus not meeting the requirements of section 32(1)(iv). The assessee countered that the term "employed in the business" should be interpreted broadly to include all persons engaged in the business, including apprentices. The court, referencing the Court of Appeal's decision in Reece v. Ministry of Supply and Ministry of Works and Planning [1945] and the Supreme Court's decision in CBDT v. Aditya V. Birla [1988], concluded that the term "employed" should be read as "engaged." Therefore, apprentices fall within the expression "persons employed in the business," and the assessee is entitled to initial depreciation for the apprentice school and shop buildings. The first question was answered in favor of the assessee.
Issue 2: Allowability of Royalty Payment as Revenue Deduction
The second issue was whether the payment of Rs. 1,73,849 to Messrs. Harnischfeger Corporation, U.S.A., was a revenue or capital expenditure. The Tribunal found that the amount was due and payable during the relevant year, making it a question of fact. The court examined the agreement and determined that the payment was connected with the manufacturing and selling of the assessee's products, payable at 2.5% of the net sale prices. The court emphasized that the nature of the expenditure, its purpose, and its intended effect should be considered in a practical and business-oriented manner. Citing the Supreme Court's decisions in Alembic Chemical Works Co. Ltd. v. CIT [1989] and Empire Jute Co. Ltd. v. CIT [1980], the court concluded that the payment was a revenue expenditure. The second question was also answered in favor of the assessee.
Conclusion:
Both questions were answered in the affirmative, in favor of the assessee and against the Revenue. No order as to costs.
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1993 (1) TMI 63
Issues Involved:
1. Whether the unclaimed credit balance of Rs. 6,093 written back to the profit and loss account forms part of the trading receipts and is includible in the total income.
2. Applicability of section 41(1) of the Income-tax Act, 1961.
Summary:
Issue 1: Unclaimed Credit Balance as Trading Receipts
The assessee, a limited company publishing "The Times of India," had an unclaimed credit balance of Rs. 6,093 from casual contributors and part-time correspondents, which was transferred to the profit and loss account. The Income-tax Officer included this amount as income. However, the Appellate Assistant Commissioner and subsequently the Income-tax Appellate Tribunal excluded it, reasoning that the amounts belonged to outsiders and the mere transfer to the profit and loss account did not make it the income of the assessee. The Tribunal held that the amount did not form part of the trading receipts.
Issue 2: Applicability of Section 41(1)
The Revenue argued that section 41(1) of the Act applies, which deems any remission or cessation of trading liability as profits chargeable to tax. The court noted that for section 41(1) to apply, two conditions must be met: an allowance or deduction must have been made in the assessment for any year, and subsequently, the assessee must obtain any amount in respect of such liability. The court found that the first condition was undisputed, but the controversy was about the cessation of liability. The court rejected the assessee's argument that cessation requires a bilateral act, stating that in cases where the recovery is barred by limitation, a unilateral act by the debtor might suffice.
The court observed that the liabilities had become unenforceable by lapse of time, and the assessee's transfer of the amount to the profit and loss account indicated an intention not to pay. The court distinguished this case from previous cases like Kohinoor Mills Co. Ltd. v. CIT and J. K Chemicals Ltd. v. CIT, where the liabilities were still enforceable under special labor legislations. Here, the liability had ceased to exist by operation of law, and the transfer to the profit and loss account was a clear declaration of cessation.
The court concluded that section 41(1) was applicable, and the amount of Rs. 6,093 should be deemed as profit and included in the total income of the assessee. The Tribunal's decision was reversed, and the question was answered in favor of the Revenue. No order as to costs was made.
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9911796707
