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Showing 181 to 200 of 229 Records

• 1985 (3) TMI 50
  
  Issues:
  Whether the assessee is entitled to deduction under section 5(1)(iv) of the Wealth-tax Act, 1957, in respect of property belonging to the firm.
  
  Analysis:
  The case involved a dispute regarding the entitlement of the assessee to a deduction under section 5(1)(iv) of the Wealth-tax Act, 1957, for a property belonging to a partnership firm. The assessee, a partner in the firm, claimed exemption for a house property owned by the partners but treated as a firm asset. The Wealth Tax Officer (WTO) denied the exemption, asserting that the property belonged to the firm, not the individual partner. However, the Appellate Assistant Commissioner (AAC) took a different view, which was challenged by the Revenue before the Tribunal.
  
  The Tribunal held that even though the property became a firm asset, as the partners were residing in the house and using it for residential purposes, it could be considered as belonging to the partners. The Tribunal's decision was based on the interpretation of section 4(1)(b) of the Act, which deals with the inclusion of an individual's interest in a firm in their net wealth. The Supreme Court's decision in Juggilal Kamlapat Bankers v. WTO was cited to support the view that a partner's interest in a firm is part of their net wealth and should be considered for wealth tax purposes.
  
  The Court further analyzed the provisions of the Wealth-tax Act, emphasizing that a partner's interest in a firm is considered an asset and is included in the computation of net wealth. Section 5 of the Act provides exemptions, including for assets like a house owned by the assessee. Referring to previous judgments, the Court concluded that the exemption under section 5(1)(iv) cannot be denied to the assessee who is a partner in a firm for a house that is part of the firm's assets. Therefore, the Court answered the question in the reference in favor of the assessee, allowing the deduction under section 5(1)(iv) for the property in question.
  
  In conclusion, the judgment clarifies the treatment of a partner's interest in a firm as part of their net wealth for wealth tax purposes and affirms the entitlement to exemptions under the relevant provisions of the Wealth-tax Act.

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• 1985 (3) TMI 49
  
  Issues Involved: Validity of reopening of assessment u/s 148 of the Income Tax Act.
  
  Summary:
  The petitioner, a registered partnership firm engaged in the business of decorticating groundnut and manufacturing groundnut oil, filed its return for the assessment year 1978-79. The Income-tax Officer (ITO) completed the assessment u/s 143(3) of the Income Tax Act of 1961. Subsequently, the ITO issued a notice under s. 148 to reopen the assessment, which the petitioner challenged under article 226 of the Constitution, arguing that the reopening was without jurisdiction. The ITO's reasons for reopening the assessment were based on a claimed excessive driage of groundnuts, suggesting that income had escaped assessment. The petitioner contended that the notice was an attempt to change the ITO's opinion on the previous assessment, which is impermissible. The ITO, however, argued that the notice was issued based on new information received u/s 147(b) of the Act.
  
  The court examined the reasons recorded by the ITO and noted that the "notes" prepared by the ITO could not be considered as recording reasons under s. 148 of the Act, which is a statutory requirement for reopening assessments. The court emphasized that it could only review the reasons recorded by the ITO and not go beyond them. Referring to a previous case, the court highlighted that sustaining a notice should be based on the reasons recorded by the ITO and not on any accompanying "notes." As the "notes" were excluded, it was concluded that there were no valid reasons recorded by the ITO to justify the reopening of the assessment under s. 147(b) of the Act. Therefore, the court quashed the impugned notice.
  
  The court did not delve into the argument that the "notes" did not constitute information as to a fact justifying reopening under s. 147(b) as the notice was quashed on the primary ground. Consequently, the court held the impugned notice to be quashed, directing the parties to bear their own costs.

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• 1985 (3) TMI 48
  
  Issues Involved:
  1. Nature of the "undertaking" acquired by the Government of India.
  2. Apportionment of lump sum compensation among various assets.
  3. Determination of capital gains and applicability of s. 45 of the I.T. Act, 1961.
  4. Validity of conditional option for substitution of market value u/s 55(2).
  5. Method of valuation and computation of cost of acquisition and improvement.
  
  Summary:
  
  1. Nature of the "Undertaking" Acquired by the Government of India:
  The Tribunal was justified in holding that the undertaking of the assessee company was a capital asset on transfer of which capital gains would arise. The undertaking taken over by the Government of India under the BCATU Act was considered a "capital asset" within the meaning of s. 2(14) of the I.T. Act, 1961, and the gains arising from the transfer of such a capital asset had to be computed after determining the cost of acquisition.
  
  2. Apportionment of Lump Sum Compensation Among Various Assets:
  The Tribunal's decision to apportion the compensation among various assets was challenged. The court noted that the compensation awarded to the assessee was for the entire business undertaking and it was not feasible to apportion it among individual assets. The court referred to the Supreme Court's decision in CIT v. Mugneeram Bangur & Co. (Land Department) [1965] 57 ITR 299, which held that in the case of a sale of a whole concern, the agreed price cannot be apportioned on capital assets in specie.
  
  3. Determination of Capital Gains and Applicability of s. 45 of the I.T. Act, 1961:
  The court examined whether the compulsory acquisition of the undertaking resulted in a transfer of a capital asset so as to attract s. 45 of the I.T. Act, 1961. It was argued that the cost of acquisition and the cost of improvement of the undertaking could not be ascertained, making it impossible to compute the capital gain. The court referred to the Supreme Court's decision in CIT v. Srinivasa Setty [1981] 128 ITR 294, which held that if the cost of acquisition and/or the date of acquisition of the asset cannot be determined, then it cannot be described as an "asset" within the meaning of s. 45.
  
  4. Validity of Conditional Option for Substitution of Market Value u/s 55(2):
  The Tribunal directed the ITO to give the assessee an opportunity to exercise a clear option under s. 55(2) of the I.T. Act, 1961, and not a conditional option. The court agreed with this direction, stating that the option should be exercised unconditionally.
  
  5. Method of Valuation and Computation of Cost of Acquisition and Improvement:
  The Tribunal's method for apportioning the compensation amount among various assets and its directions regarding the computation of the cost of acquisition and improvement were questioned. The court held that the answers to these questions were premature and should be addressed as and when the option is exercised by the assessee. The ITO was directed to adopt any reasonable method for determining the market value of the assets as on January 1, 1954, without reference to the Tribunal's observations or findings.
  
  Conclusion:
  The court provided answers to the questions referred by the Tribunal, affirming the nature of the undertaking as a capital asset and declining to answer certain questions due to lack of findings by the Tribunal. The court emphasized the need for a clear option under s. 55(2) and directed the ITO to adopt a reasonable method for valuation.

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• 1985 (3) TMI 47
  
  Issues involved:
  - Whether the Tribunal was legally correct in directing the ITO to consider admissibility of depreciation and development rebate as per Circulars issued by the Central Board of Direct Taxes.
  - Whether the Tribunal was legally correct in including the value of machinery in the computation of capital employed for section 84 purposes as per Circulars issued by the Central Board of Direct Taxes.
  
  Admissibility of Depreciation and Development Rebate:
  The case involved an assessee who purchased machinery under a hire-purchase agreement for a plaster of paris unit. The dispute arose regarding the allowance of depreciation and development rebate on the machinery. The ITO reopened assessments and withdrew the depreciation and rebate but allowed interest on the hire-purchase agreement. The AAC rejected the assessee's contention based on Circulars issued by the Central Board of Direct Taxes. The Tribunal held that the ITO was bound by the Circulars and directed the consideration of the assessee's claim in line with the Circulars. The High Court agreed with the Tribunal, citing Supreme Court judgments that Circulars are binding on income-tax authorities. The Circulars resolved the difficulty in assessing income where machinery was purchased on hire-purchase, leading to a decision in favor of the assessee on this issue.
  
  Computation of Capital Employed under Section 84:
  Regarding the computation of capital employed under section 84 of the Income Tax Act, the Tribunal determined that if the machinery purchased on hire-purchase belonged to the assessee for depreciation and development rebate purposes, it should also be considered as belonging to the assessee for section 84 application. The High Court found no fault in this reasoning and answered the question in favor of the assessee. The judgment relied on the Circulars issued by the Central Board of Direct Taxes to resolve the issue at hand without delving into other interpretations of the Act.
  
  Separate Judgment:
  The High Court did not mention any separate judgment delivered by the judges, and the decision was based on the interpretation of Circulars and relevant legal provisions.

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• 1985 (3) TMI 46
  
  Issues Involved:
  1. Whether the sum of Rs. 7,43,750 constituted "monies borrowed" and could be included in the capital base for surtax assessments for the assessment years 1973-74, 1974-75, and 1975-76.
  
  Detailed Analysis:
  
  Issue 1: Whether the sum of Rs. 7,43,750 constituted "monies borrowed" and could be included in the capital base for surtax assessments for the assessment years 1973-74, 1974-75, and 1975-76.
  The assessee, a limited company, purchased machinery from M/s. Unitechna, Berlin, GDR. According to the agreement, Rs. 7,43,750 was payable towards the purchase of this capital asset and was shown as a long-term loan in the assessee's books. During assessment proceedings for surtax, the assessee claimed this amount as "moneys borrowed" for acquiring a capital asset and sought its inclusion in the capital computation.
  
  The Income Tax Officer (ITO) rejected this claim, stating that the assessee had not borrowed money but had agreed to pay the purchase consideration in installments. The ITO relied on the Supreme Court decision in Bombay Steam Navigation Co. (1953) Pvt. Ltd. v. CIT [1965] 56 ITR 52, which held that an agreement to pay the balance of consideration does not constitute a loan.
  
  The Appellate Assistant Commissioner (AAC) also rejected the assessee's claim. Upon further appeal, the Tribunal concluded that the unpaid purchase consideration, guaranteed by an Indian bank, constituted a loan under Rule 1(v) of the Second Schedule to the Surtax Act. Consequently, the Tribunal allowed the assessee's appeal.
  
  The Revenue, dissatisfied with the Tribunal's decision, referred the matter to the High Court under Section 256(1) of the Income Tax Act, 1961.
  
  The High Court examined the terms of the agreement between the assessee and M/s. Unitechna. The agreement outlined the payment structure: 7.5% as advance payment, 7.5% via an irrevocable letter of credit, and the remaining 85% in sixteen half-yearly installments. The agreement also required the assessee to open an irrevocable banker's guarantee and pay interest on the outstanding balance.
  
  The High Court observed that the agreement provided for installment payments for the purchase price, not a borrowing. The relationship between the assessee and Unitechna was that of debtor and creditor, not borrower and lender. The court emphasized that borrowing involves a positive act of lending and acceptance of money as a loan, which was absent in this case.
  
  The High Court referred to several precedents, including Lakshmanier & Sons v. CIT & EPT [1950] 18 ITR 734 (Mad) and Bombay Steam Navigation Co. (1953) Pvt. Ltd. v. CIT [1965] 56 ITR 52 (SC), which clarified that not all debts are loans and that the relationship of borrower and lender must exist for an amount to be considered borrowed money.
  
  The High Court concluded that the unpaid purchase consideration did not transform into a borrowing due to the bank guarantee. The unpaid amount remained a trading debt, not borrowed capital. The court also noted that the proviso to Rule 1(v) of the Second Schedule requires that the borrowing must precede the acquisition of the capital asset and must be for its creation, which was not the case here.
  
  The court found that the Tribunal erred in its interpretation and concluded that the amount in question could not be included in the capital base for surtax purposes. The High Court answered the reference in the negative, in favor of the Revenue, and awarded costs to the Revenue.
  
  Conclusion
  The High Court determined that the sum of Rs. 7,43,750 did not constitute "monies borrowed" and could not be included in the capital base for surtax assessments for the relevant assessment years. The court emphasized the necessity of a borrowing relationship, which was absent in this case, and ruled in favor of the Revenue.

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• 1985 (3) TMI 45
  
  Issues Involved:
  1. Interpretation of sections 80B(5), 80A(2), 71, and 72 of the Income-tax Act, 1961 regarding the computation of total income and deductions under sections 80L and 80M.
  2. Validity of the rectification orders u/s 154 of the Income-tax Act, 1961.
  
  Summary:
  
  Issue 1: Interpretation of Sections 80B(5), 80A(2), 71, and 72
  
  The Tribunal held that the set-off of current year's losses and carried forward losses against the current year's income u/s 71 and 72 is not part of the computation of total income. Therefore, deductions u/s 80L and 80M should be allowed even if the net result after such setting off is a negative figure. The Tribunal relied on decisions from the Kerala High Court and Mysore High Court, concluding that deductions under Chapter VI-A go into the computation of total income, and set-offs are made after this computation.
  
  Issue 2: Validity of Rectification Orders u/s 154
  
  The Tribunal annulled the ITO's orders u/s 154, stating there was no mistake apparent from the record in the earlier orders granting relief u/s 80L and 80M. The Tribunal's decision was based on the premise that the issue was debatable, and thus not rectifiable u/s 154.
  
  Court's Analysis and Decision:
  
  The court considered various precedents, including CIT v. Ellenbarrie Tea Company Ltd., Jiyajeerao Cotton Mills Ltd. v. ITO, and CIT v. Orient Paper Mills Ltd., which suggested that debatable questions cannot be rectified u/s 154. However, the court also reviewed CIT v. Mcleod & Co. Ltd., which held that deductions u/s 80M should be made after setting off losses u/s 71 and 72, and any mistake in this regard is rectifiable u/s 154.
  
  The court concluded that the provisions of s. 80A are clear: no deduction can be allowed if the result after setting off losses is a negative figure. This view aligns with the Supreme Court decisions in Cambay Electric Supply Industrial Co. Ltd., Cloth Traders (P) Ltd., and Rajapalayam Mills Ltd. Consequently, the court held that the Tribunal erred in its interpretation and rectification orders u/s 154 were justified.
  
  Conclusion:
  
  The court answered both questions in the negative, favoring the Revenue, and held that the deductions u/s 80L and 80M are not allowable if the total income is negative after setting off losses. The rectification orders u/s 154 were valid as the mistake was apparent from the record. There was no order as to costs.

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• 1985 (3) TMI 44
  
  Issues:
  1. Jurisdiction of the Commissioner of Income-tax to act under section 263 of the Income-tax Act, 1961.
  2. Valuation of bonus shares in computing capital gains.
  3. Whether the Tribunal should refer the question to the High Court.
  
  Analysis:
  
  1. Jurisdiction of the Commissioner of Income-tax:
  The case involved a dispute regarding the jurisdiction of the Commissioner of Income-tax to act under section 263 of the Income-tax Act. The Commissioner initiated proceedings under section 263 as he found the original assessment order to be prejudicial to the Revenue. The Income-tax Officer had determined the cost of acquisition of shares based on the market value as on January 1, 1964. The Tribunal held that the Commissioner had the jurisdiction to invoke section 263 as the market value was uniformly adopted for all shares, including bonus shares. However, the Tribunal modified the Commissioner's direction and remitted the matter back to the Income-tax Officer to redetermine the capital gains in accordance with law after considering the assessee's objections.
  
  2. Valuation of Bonus Shares:
  The dispute also revolved around the valuation of bonus shares in computing capital gains. The assessee contended that the Commissioner erred in valuing bonus shares at "nil" and argued that bonus shares should be valued by spreading the cost of the original shares over both original and bonus shares. The Tribunal agreed with the assessee's contention and held that the valuation of bonus shares and the determination of capital gains arising from their sale should be decided by the Income-tax Officer upon remittance of the matter.
  
  3. Referral to High Court:
  The assessee sought a direction from the High Court to refer a question regarding the Tribunal's decision to the court. However, the High Court found no justification to direct a reference as the Tribunal's order allowed the assessee to present all contentions before the Income-tax Officer. The High Court dismissed the petition, emphasizing that the Commissioner had the jurisdiction to act under section 263, and the Tribunal's decision was justified in upholding this jurisdiction.
  
  In conclusion, the High Court upheld the jurisdiction of the Commissioner of Income-tax under section 263 and dismissed the petition, stating that there was no need for a reference to the High Court. The case highlighted the importance of proper valuation of shares and the authority of the Commissioner to rectify prejudicial assessments under the Income-tax Act.

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• 1985 (3) TMI 43
  
  Issues:
  Petition under section 482, Criminal Procedure Code against the order of discharge, alternative prayer for leave to appeal against acquittal, lack of evidence adduced by the petitioner, application under section 245(2), Criminal Procedure Code, discharge of the respondent due to lack of evidence, distinction between discharge and acquittal, exercise of inherent power under section 482, Criminal Procedure Code, reliance on legal precedents, maintainability of the petition, essence of the offence under section 277 of the Income-tax Act, requirement of establishing knowledge of false verification for conviction, lack of prima facie evidence for offence under section 420, Indian Penal Code.
  
  Analysis:
  The petitioner, an Income-tax Officer, filed a petition under section 482, Criminal Procedure Code, challenging the order of discharge passed by the Chief Judicial Magistrate against the respondent, an income-tax assessee. The petitioner alleged that the respondent submitted false returns for the assessment years 1965-66 and 1966-67, concealing income assessable to tax, with the intent to deceive and defraud the Income-tax Department. Despite several opportunities, the petitioner failed to adduce any evidence in support of the complaint, leading to the discharge of the respondent on the grounds of lack of evidence warranting conviction.
  
  The court distinguished between discharge and acquittal, emphasizing that acquittal follows a regular trial with evidence adduced after framing charges, which was not the case here. The court noted that the respondent's submission of a judgment from the Income-tax Appellate Tribunal did not amount to an acquittal. The petitioner's failure to file a revision within the prescribed time barred the exercise of inherent power under section 482, Criminal Procedure Code, to challenge the discharge order.
  
  Legal precedents cited by the petitioner were deemed distinguishable from the facts of the case. The respondent argued against the maintainability of the petition, citing a legal decision that the averments made did not prima facie establish a case against the respondent. The court highlighted the essence of the offence under section 277 of the Income-tax Act, requiring the prosecution to prove the accused's knowledge of false verification for conviction, which was lacking in this case. Similarly, for the offence under section 420, Indian Penal Code, there was a lack of prima facie evidence or material adduced by the petitioner.
  
  Ultimately, the court found no merit in the petition, dismissing it and upholding the order of discharge against the respondent.

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• 1985 (3) TMI 42
  
  Issues Involved:
  1. Deductibility of business expenditure under Section 37(2B) of the Income-tax Act, 1961.
  2. Validity of the Tribunal's finding allowing 50% of the entertainment expenditure as customary hospitality.
  
  Issue-wise Detailed Analysis:
  
  1. Deductibility of Business Expenditure under Section 37(2B) of the Income-tax Act, 1961:
  The primary issue was whether the expenditure incurred by the assessee on providing coffee, tea, and other refreshments to customers could be classified as business expenditure and thus be deductible under Section 37(1) of the Income-tax Act, 1961. The Income Tax Officer (ITO) initially disallowed these expenses, treating them as entertainment expenditure. However, the Appellate Assistant Commissioner (AAC) deleted the disallowance, holding that such expenses were not entertainment expenditure but customary hospitality. The Tribunal, upon further appeal, remanded the case back to the AAC due to lack of evidence, and the AAC confirmed the addition again. The Tribunal, on subsequent appeal by the assessee, allowed 50% of the expenditure, recognizing it as customary hospitality.
  
  The High Court emphasized that the distinction between customary hospitality and entertainment expenditure was settled in the case of Karuppuswamy Nadar & Sons [1979] 120 ITR 140 (Mad), where it was held that expenses on coffee and tea do not constitute entertainment expenditure but are business-related and deductible under Section 37(1). The High Court declined to direct the Tribunal to refer the question to it, stating that the matter was already settled by the Division Bench and there was no need to revisit it, even though a similar issue was pending before the Supreme Court.
  
  2. Validity of the Tribunal's Finding Allowing 50% of the Entertainment Expenditure as Customary Hospitality:
  The second issue was whether the Tribunal's decision to allow 50% of the claimed expenditure as deductible was based on valid materials and a reasonable view. The Tribunal allowed 50% of the expenditure due to the lack of specific evidence, given the lapse of time, and based on the earlier finding that the expenditure was related to providing coffee and tea to customers.
  
  The High Court found that the Tribunal's decision was a reasonable estimate given the circumstances and the nature of the assessee's business. The court noted that the Tribunal's decision was in line with the principle that such expenditure, even if not fully documented due to the passage of time, could be reasonably estimated. The High Court held that this did not raise a substantial question of law warranting a reference.
  
  Conclusion:
  The High Court rejected the Revenue's petitions under Section 256(2) of the Income-tax Act, 1961, to direct the Tribunal to refer the questions to the court. The court reiterated that the distinction between customary hospitality and entertainment expenditure was well-settled by precedent, and the Tribunal's decision to allow 50% of the expenditure was a reasonable exercise of discretion. The assessee was awarded costs of Rs. 250 from the Revenue.

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• 1985 (3) TMI 41
  
  Issues:
  1. Interpretation of provisions of section 4(1)(a)(i) of the Wealth-tax Act, 1957.
  2. Inclusion of transferred amount in the net wealth of the assessee.
  
  Analysis:
  The case involved a dispute regarding the inclusion of an amount of Rs. 1,40,000 in the net wealth of the assessee under section 4(1)(a)(i) of the Wealth-tax Act, 1957. The amount was transferred by the assessee to a trust for his would-be wife and later handed over to the lady who became the assessee's wife. The Tribunal applied the decision of the Supreme Court in Philip John Plasket Thomas v. CIT [1963] 49 ITR 97 (SC) to determine that the provision in question would not be attracted in this case. The Tribunal held that since the actual payment was made to the lady before the marriage, the Supreme Court's decision was applicable, even though the counsel for the Revenue tried to distinguish the cases based on the Income-tax Act, 1922. The Tribunal emphasized that the timing of the transfer was crucial, not the date of marriage.
  
  The key contention was whether the funds transferred to the lady before marriage should be included in the assessee's net wealth. The trust deed specified that the funds would be handed over after marriage, but the trustees transferred the amount to the lady's father before the marriage took place. The court highlighted that the relevant date for consideration was when the transfer occurred, not when the marriage was solemnized. Despite arguments about the trust deed's terms, the court emphasized that the actual payment date was significant in determining the legal consequences. The court rejected the Revenue's argument that the funds should be considered the wife's property only after marriage, stating that the payment before marriage was crucial.
  
  Ultimately, the court dismissed the tax case petition, stating that the questions raised were covered by the Supreme Court's decision cited earlier. The court emphasized that the legal consequences of the payment made before the marriage could not be ignored, even if it contradicted the trust deed's terms. The judgment highlighted the importance of the timing of the transfer in determining the applicability of the Wealth-tax Act provisions.

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• 1985 (3) TMI 40
  
  Issues:
  Interpretation of the nature of expenses on repairs and renovations for assessment years 1964-65, 1966-67, and 1968-69 under the Income-tax Act, 1961.
  
  Detailed Analysis:
  
  The case involves a reference under section 256(1) of the Income-tax Act, 1961, concerning the deductibility of expenses incurred on repairs and renovations to a furnace for the assessment years 1964-65, 1966-67, and 1968-69. The Income-tax Officer initially rejected the claim of the assessee, a private limited company, on the grounds that the repairs were not current in nature and provided enduring value based on the high expenditure and statements in the directors' report. The Appellate Assistant Commissioner (AAC) disagreed, emphasizing the necessity of regular repairs due to severe wear and tear and the proportionality of expenses compared to industry standards. The Appellate Tribunal upheld the AAC's decision, concluding that the expenses were revenue in nature, not capital. The Revenue, dissatisfied with the Tribunal's decision, sought the High Court's opinion under section 256(1) of the Act.
  
  The crucial issue at hand is whether the expenses on repairs and renovations qualify as "current repairs" under the Act. The High Court referenced the case law to distinguish between current repairs and capital expenditure. Notably, the court cited the case of CIT v. Darbhanga Sugar Co. Ltd., emphasizing that the nature of repairs, not just the quantum of expenditure, determines their classification. The court also discussed the case of Sitalpur Sugar Works Ltd. v. CIT, highlighting the distinction between capital expenditure and repairs essential for ordinary use. In the present case, the Tribunal's observations indicated that the expenses were incurred to replace and repair damaged parts of the furnace, without resulting in enduring benefits. The court agreed with the Tribunal's findings that the repairs were current in nature, essential for the regular operation of the furnace.
  
  The court emphasized that the repairs were necessary to maintain the furnace's functionality due to the industry's high-temperature operations, requiring annual refurbishments. The court criticized the Income-tax Officer's focus on the high expenditure and potential production improvements, asserting that regular repairs do not imply enduring benefits. By analyzing the proportionality of expenses and industry standards, the court affirmed that the repairs were current in nature and not capital expenditure. Consequently, the High Court upheld the Tribunal's decision, ruling in favor of the assessee and against the Department, with no order as to costs.

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• 1985 (3) TMI 39
  
  Issues:
  1. Taxability of premium received on the sale of import entitlements under section 28(iv) of the Income-tax Act.
  2. Distinction of the decision of the Supreme Court in CIT v. Madan Gopal Radhey Lal by the Tribunal.
  3. Whether the premium received on the sale of import entitlements can be considered as capital gain and not liable to tax based on the decision of the Madras High Court in Addl. CIT v. Sheik Mohideen.
  
  Analysis:
  The case involved an exporter of fish and fish products who received import entitlement based on its exports. The exporter sold the import licenses without actually importing the goods, resulting in sale proceeds of Rs. 5,80,436.89. The Income-tax Officer treated this amount as a revenue or business receipt. The Commissioner of Income-tax (Appeals) upheld this treatment, considering the close nexus between exports and import entitlement. The matter was then taken to the Tribunal, which, following a decision of the Bombay High Court, deemed the sale proceeds as a revenue receipt, not a capital receipt.
  
  The main contention raised by the assessee was the absence of a specific decision by the court on the matter, seeking a reference for an authoritative ruling. However, the court, in agreement with the Bombay High Court decision, held that the sale of import entitlement should be considered a revenue receipt. The court emphasized that exploiting the import entitlement through sale, instead of actual import, does not change the nature of the receipt. The court supported its decision by quoting the Bombay High Court's reasoning that import entitlements obtained in the course of business constitute profits and gains of the business, making the sale proceeds also part of the business profits.
  
  Ultimately, the court rejected the petition, stating that the sale of import entitlements should be treated as profits of the business, aligning with the Bombay High Court's view. The court concluded that there was no justification for a reference in this case, thereby upholding the treatment of the sale proceeds as a revenue receipt and not a capital receipt.

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• 1985 (3) TMI 38
  
  Issues:
  Assessment of speculation income in the name of a minor daughter, inclusion of income in the hands of the assessee, authority of guardian to conduct business on behalf of a minor, legality of speculation business in the name of a minor, application of income-tax laws to minor's income.
  
  Analysis:
  The judgment pertains to a reference under section 256(1) of the Income-tax Act, 1961, where the assessment for the year 1966-67 was reopened due to speculation income earned in the name of the assessee's minor daughter. The Income-tax Officer included the speculation income in the assessee's assessment, contending that the business really belonged to him, not the minor. However, the Appellate Assistant Commissioner disagreed, stating that even if the business was illegal, the income should be assessed in the minor's hands. The Tribunal upheld this view, emphasizing that the guardian had the authority to conduct business on behalf of the minor, and the income belonged to the minor, not the guardian.
  
  The main legal question raised was whether the Tribunal was correct in excluding the speculation income from the total income of the assessee. The Revenue argued that the income should be assessed in the hands of the father, as the minor could not conduct the business herself. Conversely, the assessee relied on legal principles from a previous case to support the exclusion of the income from the father's total income. The court noted that the Tribunal's findings, which favored the assessee, were not challenged by the Revenue, leading to a conclusion based on those facts.
  
  In a previous case cited, it was established that when a minor conducts business through a guardian, the income earned belongs to the minor, not the guardian. The court reiterated that the minor was carrying out the business through her father as a guardian, and the income should not be included in the guardian's total income. The court upheld the Tribunal's decision, emphasizing that the business was conducted by the guardian on behalf of the minor, and the income rightfully belonged to the minor.
  
  In conclusion, the court affirmed that the Tribunal's decision to exclude the speculation income from the assessee's total income was correct based on the facts presented. The judgment highlights the legal principles governing the assessment of income earned by minors through guardians and reinforces the distinction between the income of the minor and the guardian in such cases.

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• 1985 (3) TMI 37
  
  Issues involved:
  Challenging notices u/s 154 of Income-tax Act, 1961 for recomputing relief u/s 80J due to retrospective amendment.
  
  Summary:
  
  The High Court of Madras delivered a judgment on two petitions challenging notices issued u/s 154 of the Income-tax Act, 1961, regarding the recomputation of relief u/s 80J due to a retrospective amendment. The Supreme Court upheld the constitutionality of the amended section 80J, which had retrospective effect. The assessment years in question were 1972-73 and 1974-75 for a public limited company. The Income-tax Appellate Tribunal and the Appellate Assistant Commissioner had previously allowed the assessee the relief under section 80J. However, the Inspecting Assistant Commissioner issued notices in 1980, which were challenged on the grounds of lack of competence and interference with final orders. The High Court held that the Inspecting Assistant Commissioner was not entitled to rectify the orders as they were based on the directions of the Tribunal and the Appellate Assistant Commissioner, which had attained finality. The orders giving effect to the relief under section 80J could not be disturbed without proper legal process. Therefore, the petitions were allowed, and the notices u/s 154 were quashed, with costs awarded to the assessee.

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• 1985 (3) TMI 36
  
  Issues:
  1. Competent Authority's valuation discrepancy and initiation of acquisition proceedings.
  2. Interpretation of provisions under section 269C of the Income-tax Act, 1961.
  3. Application of fair market value in property acquisition cases.
  4. Authority of Valuation Officer to submit multiple valuation reports.
  
  Competent Authority's Valuation Discrepancy and Initiation of Acquisition Proceedings:
  The case involved four appeals under section 269H of the Income-tax Act, 1961, concerning the sale of a plot in New Delhi. The Competent Authority initiated proceedings based on valuation reports by two Valuation Officers, showing a significant difference in the fair market value of the property. The Tribunal noted the lack of discussion on the discrepancy and held that the initiation of proceedings was routine and stereotyped, vitiating the acquisition order.
  
  Interpretation of Provisions under Section 269C:
  Section 269C allows the Competent Authority to initiate proceedings if there is reason to believe that property has been transferred for an apparent consideration below fair market value to evade tax or conceal income. The Tribunal emphasized the need for material evidence to support the belief, rejecting the presumption of understatement of consideration. It clarified that the fair market value must exceed the apparent consideration by more than 15% for proceedings to be valid.
  
  Application of Fair Market Value in Property Acquisition Cases:
  The Tribunal criticized the Valuation Officer's arithmetical approach to determine fair market value, highlighting the lack of market-based evidence. The valuation reports were based on theoretical calculations and multipliers, deviating from the statutory definition of fair market value. The Tribunal emphasized the importance of considering actual market value rather than theoretical calculations to justify property acquisition.
  
  Authority of Valuation Officer to Submit Multiple Valuation Reports:
  The Tribunal questioned the Valuation Officer's submission of two inconsistent reports without proper justification. It analyzed the powers granted to Valuation Officers under section 269L and the Wealth-tax Act, concluding that the Competent Authority should disregard the second report. The Tribunal held that without valid market-based evidence, the Competent Authority lacked jurisdiction to initiate acquisition proceedings.
  
  In conclusion, the High Court rejected the appeal, emphasizing the need for concrete material supporting the fair market value and criticizing the reliance on theoretical calculations. The judgment highlighted the importance of adhering to statutory provisions and ensuring proper valuation practices in property acquisition cases to prevent tax evasion and maintain legal integrity.

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• 1985 (3) TMI 35
  
  Issues Involved:
  
  1. Disallowance of remuneration paid to Sri M. M. Thapar.
  2. Allowability of expenditure incurred for bringing the dead body of the chairman from Delhi to Calcutta.
  
  Issue-wise Detailed Analysis:
  
  1. Disallowance of Remuneration Paid to Sri M. M. Thapar:
  
  The primary issue concerns whether the payment of Rs. 73,308 to Sri M. M. Thapar by way of salary and profit commission was excessive or unreasonable, thus justifying the disallowance of a portion thereof under section 40(c) of the Income-tax Act, 1961. The Income-tax Officer allowed remuneration of Rs. 36,000 but disallowed Rs. 37,308, reasoning that such high remuneration could not have been justified purely on business considerations, especially given Thapar's short tenure and familial connection to the managing director.
  
  The Appellate Assistant Commissioner upheld this disallowance, noting that Thapar's qualifications and experience did not justify such high remuneration. The Tribunal, however, reversed this decision, referencing its order for the assessment year 1961-62, where it had allowed the full claim of remuneration to Thapar. The Tribunal emphasized that Thapar's appointment followed the retirement of another director, and no special post was created for him. It acknowledged Thapar's qualifications and experience in business and management, concluding that the remuneration was reasonable and justified.
  
  The High Court, following its decision in CIT v. Karam Chand Thapar & Bros. (P.) Ltd. [1978] 115 ITR 688 (Cal), answered the question in the negative, in favor of the assessee, stating that the payment was not excessive or unreasonable.
  
  2. Allowability of Expenditure for Bringing the Dead Body of the Chairman:
  
  The second issue revolves around whether the expenditure of Rs. 16,737 incurred for bringing the dead body of the chairman, late Karam Chand Thapar, from Delhi to Calcutta was an allowable business expenditure. The Income-tax Officer and the Appellate Assistant Commissioner disallowed this claim, arguing that the expenditure was not wholly and exclusively laid out for business purposes.
  
  The Tribunal, however, allowed the claim, relying on the Delhi High Court's decision in CIT v. Supreme Motors (P) Ltd. [1972] 84 ITR 1, which held that similar expenses were incidental to the business and thus allowable. The Tribunal noted that Thapar was on a business tour to Delhi, and it was the company's responsibility to bring him back, whether alive or deceased.
  
  The High Court agreed with this reasoning, stating that the expenditure was incidental to the business carried on by the assessee and should be judged from the standpoint of commercial expediency. The Court emphasized that the death of Thapar did not alter the company's duty to bear the expenses for his return, thereby affirming the Tribunal's decision and allowing the expenditure as a business expense.
  
  Conclusion:
  
  The High Court ruled in favor of the assessee on both issues. For the remuneration paid to Sri M. M. Thapar, the Court found no excessive or unreasonable payment, thus disallowing the Income-tax Officer's adjustment. Regarding the expenditure for transporting the chairman's body, the Court deemed it a legitimate business expense, aligning with principles of commercial expediency.

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• 1985 (3) TMI 34
  
  Issues:
  1. Interpretation of section 15 of the Voluntary Disclosure of Income and Wealth Ordinance, 1975.
  2. Legality of cancelling penalty imposed under section 18(1)(a).
  
  Analysis:
  
  Issue 1: Interpretation of section 15 of the Voluntary Disclosure of Income and Wealth Ordinance, 1975
  The judgment pertains to eight applications under section 27(3) of the Wealth-tax Act, 1957, made by the Commissioner of Wealth-tax, Allahabad, for the assessment years 1967-68 to 1974-75. The assessee voluntarily disclosed wealth under the Voluntary Disclosure of Income and Wealth Ordinance, 1975. The Wealth-tax Officer initiated penalty proceedings, which were upheld by the Appellate Assistant Commissioner but later overturned by the Income-tax Appellate Tribunal. The Commissioner of Wealth-tax sought to refer two questions to the High Court regarding the interpretation of section 15 of the Ordinance. The High Court held that the voluntary disclosure made by the assessee, as per section 15, granted immunity from penalty if the wealth was declared in the prescribed manner and paid within the specified time. The Tribunal's decision to dismiss the Commissioner's applications was upheld, stating that no legal question arose from the Tribunal's order.
  
  Issue 2: Legality of cancelling penalty imposed under section 18(1)(a)
  The Tribunal's order indicated that the voluntary disclosure made by the assessee was accepted, and the wealth-tax chargeable for the relevant assessment years was paid within the stipulated time. The Tribunal held that the assessee was entitled to immunity from penalty as per section 15 of the Ordinance. The High Court concurred with the Tribunal's decision, emphasizing that compliance with the requirements of section 15 and the acceptance of voluntary disclosure entitled the assessee to immunity from penalty. Therefore, the High Court dismissed all applications made by the Commissioner of Wealth-tax, awarding costs to the assessee.
  
  In conclusion, the High Court's judgment clarified the interpretation of section 15 of the Voluntary Disclosure of Income and Wealth Ordinance, 1975, and affirmed that the assessee was rightfully granted immunity from penalty due to compliance with the Ordinance's provisions.

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• 1985 (3) TMI 33
  
  Issues:
  1. Whether the tax deducted at source on dividend income is available to the applicant company for credit?
  
  Analysis:
  The judgment pertains to a case where an assessee company was formed by the amalgamation of three companies. The issue in question was whether the tax deducted at source on dividend income is available to the applicant company for credit. The dividend income arose to the companies holding shares in the amalgamated company. The Income-tax Officer treated the dividend income, including the tax deducted at source, as the income of the amalgamated company. The assessee contended that the dividend income should not be treated as its income, but it should receive credit for the tax deducted at source. The Commissioner of Income-tax (Appeals) directed the Income-tax Officer to exclude the dividend income from the total income of the assessee but advised approaching the authorities for a refund of the tax wrongly deducted. The Tribunal upheld the decision that the tax deducted at source could not be credited to the assessee since the dividend income was not taxed in its hands.
  
  The Tribunal found that the dividend income was not to be assessed in the assessee's hands, leading to the conclusion that the tax deducted at source could not be given credit to the assessee. The judgment highlighted the provisions of the Income-tax Act, specifically sections 198 and 199, which deemed the tax deducted at source as income received by the person from whose income the deduction was made and allowed credit only to that person. It emphasized that one person cannot claim credit for tax paid by another person under the Act. Therefore, the court declined to direct a reference in the case, ultimately dismissing the petition with costs.
  
  In conclusion, the judgment resolved the issue by clarifying that the tax deducted at source on dividend income cannot be credited to the assessee company if the dividend income is not assessed in its hands. The decision was based on the provisions of the Income-tax Act, which dictate that credit for tax deducted at source can only be given to the person from whose income the deduction was made.

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• 1985 (3) TMI 32
  
  Issues Involved:
  1. Taxability of amounts payable by Hindustan Shipyard Limited as tax perquisites.
  2. Exemption of allowances received by the assessee u/s 10(14) of the Income-tax Act.
  3. Entitlement to relief u/s 16(v) of the Income-tax Act.
  4. Jurisdiction of the Income-tax Officer to rectify assessment orders u/s 154 of the Income-tax Act.
  
  Summary:
  
  Issue 1: Taxability of Amounts Payable by Hindustan Shipyard Limited as Tax Perquisites
  The court examined whether the amounts paid by Hindustan Shipyard Limited under the agreement with the Polish firm are tax perquisites in the hands of the assessee and liable to be taxed as "income from other sources." The court held that the income received by the assessee from Hindustan Shipyard Limited towards the payment of taxes is indeed income from other sources falling u/s 56 of the Income-tax Act. The court concluded that these amounts are liable to be taxed as income from other sources in the hands of the assessee during the relevant assessment years.
  
  Issue 2: Exemption of Allowances Received by the Assessee u/s 10(14) of the Income-tax Act
  The court addressed whether the allowances received by the assessee from his Polish employer qualify for exemption u/s 10(14) of the Income-tax Act. It was held that the nature of the allowances did not qualify them as "special allowances" specifically granted to meet expenses incurred in the performance of duties. Therefore, these allowances were part of the assessee's total income and liable to be taxed.
  
  Issue 3: Entitlement to Relief u/s 16(v) of the Income-tax Act
  The court noted that the assessee's counsel did not advance any arguments under this issue. Consequently, the court omitted this question from consideration.
  
  Issue 4: Jurisdiction of the Income-tax Officer to Rectify Assessment Orders u/s 154 of the Income-tax Act
  The court examined whether the Income-tax Officer had jurisdiction to rectify the original assessment orders. The rectification involved grossing up the income of the assessee, which was initially not done correctly. The court held that the Income-tax Officer had committed a self-evident error in the original assessment by not applying the correct method of grossing up. Therefore, the rectification u/s 154 was justified and within the jurisdiction of the Income-tax Officer.
  
  Conclusion:
  The court answered questions 1, 2, and 4 in favor of the Revenue and against the assessee. Question 3 was not addressed as it was not argued by the assessee. The referred cases were answered accordingly.

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• 1985 (3) TMI 31
  
  Issues Involved:
  1. Interpretation of questions proposed in a reference application u/s 256(2).
  
  In this judgment, the High Court of Delhi, comprising Judges D. K. Kapur and S. Ranganathan, examined five questions proposed in a reference application u/s 256(2). The court reviewed the questions, considered the Tribunal's rejection of the petition u/s 256(1), and analyzed the appellate order from which the questions of law arose.
  
  2. Determination of the nature of questions of fact and law.
  
  The court determined that question No. 1 was a question of fact, while question No. 2 was deemed covered by a judgment of the Supreme Court and hence did not require referral. The Tribunal's view on question No. 2 was found to align with the Income-tax Act, 1961, specifically section 52(1). The court noted that the Income-tax Officer did not hold the same view at any stage, rendering the question academic.
  
  3. Assessment of alleged cash credit in the assessee's books.
  
  Regarding questions Nos. 3 and 4 concerning alleged cash credits in the assessee's books, the Tribunal found that the onus had been discharged by producing supporting documents like affidavits. The court acknowledged that some persons associated with the credits were not examined by the Income-tax Officer. It was emphasized that all evidence should be on record to prevent miscarriage of justice, and the Tribunal could accept cash credits as genuine based on the available evidence.
  
  4. Determination of ownership of half interest on bank deposits.
  
  The court addressed the final question concerning half interest on bank deposits held jointly by a husband and wife. It was observed that there was no evidence indicating the source of the deposited money or the ownership distribution between the spouses. Given that the wife had been assessed on half the interest in a previous year and owned half the relevant property, the court concluded that no legal question arose. Consequently, the application was dismissed with costs imposed, including counsel's fee of Rs. 250.

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