TMI Blog1957 (4) TMI 58X X X X Extracts X X X X X X X X Extracts X X X X ..... uction to the assessee? (2) (a) Whether in the facts and circumstances of the case, interests paid on bank overdraft amounting to ₹ 46,633 or any portion of the amount should have been allowed as a deduction to the assessee? (2)(b) Whether the claim with regard to the deduction of this amount was argued on behalf of the assessee before the Appellate Tribunal as stated in the affidavit filed today in this Court? (3) Whether in the facts and circumstances of the case the forest income of Kharagpur Circle should have been treated as agricultural income and hence not taxable under the Income-tax Act? (4) Whether in the facts and circumstances of the case, the forest receipts from the Bankura forests should have been held to be capital receipts, or, in any event, as agricultural income and, therefore, not taxable? (5) Whether, in the facts and circumstances of the case, the amount of ₹ 21,274 being the amount paid to the assessee in his character of a shebait of the trust properties should have been held to be exempt from taxation on the ground that it is agricultural income? 3. The assessment year is 1950-51. The relevant accounting year is the Fasli year ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ned. It further held that there was no evidence showing the real purpose for which the assessee contributed or the purpose of the litigation. The Tribunal found that there was nothing on record to show that this amount was spent for the litigation or to protect the so-called investment. It was, therefore, of opinion that this expense was not laid out even for the purpose of protecting the investment, as alleged by the assessee. 4. At the appellate stage, before the Tribunal, the assessee raised a large number of grounds in the memorandum of appeal. The assessee's counsel, however, expressly stated that he would argue only on some of the grounds and expressly gave up the arguments with respect to the other grounds. At the time of hearing the members of the Tribunal marked the grounds which were argued by the assessee, and decided those points which were argued by the assessee's counsel. In the marking we find that the item whether the interest paid on bank overdrafts amounting to ₹ 46,633 or any part of it should have been allowed as a deduction, was not argued by the assessee's counsel. It might be that the assessees' learned counsel mentioned that he had n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... June 1949 3,00,000 Payment of income-tax. Income-tax either Central or Provincial is personal liability and is not an expenditure incurred for earning the income. Thus interest paid on monies borrowed for discharging this personal liability is not a charge against income, profits and gains. The same remarks apply to interest on borrowed monies either for personal need or for the need of other persons. The advance to Raja Bahadur is not a money-lending advance. 6. The questions 3 and 4 have already been referred to by us in M.J.C. No. 56 of 1955 and the statement of facts in the said reference would apply in the present statement of case also. 7. On 16th March, 1949, the assessee declared himself to be the sole trustee of a trust in respect of certain properties out of the five circles of his estate. The properties were situated in Rokika, Pandaul Banepuram Dholi and Bahawara Circle and a copy of the trust deed is made a part of the case and is annexure 'A'. T he assessee declared that lie would hold the properties as under trust for religious purposes and for maintaining religious institut ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Income-tax Act, 1922, on the requisition of the High Court, the Income-tax Appellate Tribunal has stated a case and referred it for the opinion of the High Court on the following questions of law: 1. Whether in the facts and circumstances of the case, the litigation expenses of ₹ 10,000 in Lala Man Mohan Das's case should have been allowed as a deduction to the assessee? 2. (a) Whether in the facts and circumstances of the case, interest paid on bank overdrafts amounting to ₹ 46,633 or any portion of the amount should have been allowed as a deduction to the assessee? 2. (b) Whether the claim with regard to the deduction of this amount was argued on behalf of the assessee before the Appellate Tribunal as stated in the affidavit filed today in this Court? 3. Whether in the facts and circumstances of the case the forest income of Kharagpur Circle should have been treated as agricultural income and, hence, not taxable under the Income-tax Act? 4. Whether in the facts and circumstances of the case, the forest receipts from the Bankura forests should have been held to be capital receipts, or, in any event, as agricultural income, and therefore not taxa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be made in respect of expenditure incurred solely for the purpose of earning such income, provided the expenditure is not in the nature of capital expenditure or personal expenses of the assessee. No allowance can be granted under this sub-section, unless four conditions are satisfied: (1) the expenditure must be solely incurred for the purpose of making; or earning the income, profits or gains; (2) it must not be in the nature of capital expenditure; (3) it must not be in the nature of personal expenses of the assessee; and (4) it must be incurred in the accounting year, and not in any prior or subsequent year. Bearing this in mind, I will now proceed to answer the different questions submitted by the Tribunal. Question No. 1: In the assessment year 1950-51 the assessee contributed a sum of ₹ 10,000 towards litigation expenses to one Lala Manmohan Das, and the assessee claimed deduction of this amount as an expenditure under section 12(2) of the Act. The facts which can be gathered from the judgments regarding the nature of this advance are these. Sometime in 1935, the assessee obtained from one P.L. Jetley 21,500 shares of the Lower Ganges and Jamuna Electric D ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e allowed as a deduction under section 12(2) of the Act. Mr. Mazumdar relied on a decision of the Bombay High Court in Commissioner of Income-tax v. Sir Purshottamdas Thakurdas [1946] 14 I.T.R. 305, on a decision of the Supreme Court in Eastern Investments Ltd. v. Commissioner of Income-tax, West Bengal [1951] 20 I.T.R. 1, on a decision of the Privy Council in Commissioner of Income-tax, Bihar and Orissa v. Maharajadhiraja Sir Kameshwar Singh of Darbhanga [1942] 10 I.T.R. 214, and on a decision of the House of Lords in Morgan (Inspector of Taxes) v. Tote Lyle Ltd [1954] 26 I.T.R. 195 In my opinion, none of these cases have any application to the present case for the simple reason that here the finding of fact reached by the Tribunal is that the assessee was not a debenture holder, and, that there was nothing on record to show that this amount was spent for litigation to protect the so-called investments. The Tribunal further found that there was no evidence showing the real purpose for which the assessee contributed the expenses, and that the holding of the shares was in the nature of an investment, and the expense for protecting the investment was not expense incurred for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itled to the deduction claimed. In the English case [1954] 26 I.T.R. 195, the object of the expenditure being to preserve the assets of the company from seizure and so to enable it to carry on and earn profits, it was held that on the evidence it was not to be assumed that the trade of the company would have continued, in an income-tax sense, in other hands, after nationalisation, and, accordingly the expenditure was incurred for the purpose of preventing a change of ownership. These cases cannot possibly assist Mr. Mazumdar, because, as stated earlier, here the definite finding of fact is that this expenditure was incurred not for the purpose of earning any income which only could be allowed to be deducted under section 12(2) of the Act. I would, therefore, answer the first question in the negative in favour of the Department and against the assessee. Question No. 2(a): This question relates to interest paid on bank overdrafts amounting to ₹ 46,633 which the assessee claimed as a deduction under section 12(2). The Tribunal has found that these overdrafts were almost wholly for (1) payment of income-tax (both Central and agricultural), (2) land revenue and cess, ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y and the Administrator and which has been sanctioned by the Court. Mr. Mazumdar emphasised the principle laid down by the Supreme Court to the effect that (i) it is not necessary to show that the expenditure was a profitable one or that, in fact, any profit was earned, and (2) it is enough to show that the money was expended not of necessity and with a view to a direct and immediate benefit to the trade, but voluntarily and on the ground of commercial expediency, and in order indirectly to facilitate the carrying on of the business. Mr. Mazumdar further relied on a decision of the Madras High Court in Commissioner of Income-tax, Madras v. Raman and Raman Ltd.* in which it was held, on the facts of that case. that the expenditure was in incurred for the purpose of retaining the capital asset of the company, and, there was no improvement of its capital asset by reason of the litigation. Consequently, the expenditure incurred was an allowable deduction under section 10(a)(xv) of the Act. The answer to this question is that section 12(2) is narrower than section 10(2)(xv). Section 10(2)(xv) speaks of an expenditure which is laid out or expended wholly and exclusively for the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h, the deduction claimed by the assessee on this account was disallowed. It may be mentioned here that this question was not argued by the assessee before the Tribunal, and, therefore, there is no discussion or any finding on this point in the original order of the Tribunal. The Tribunal, however, in its statement of the case under section 66(2) has stated the facts as emerged from the findings of the Income-tax Officer and dealt with the point. In my opinion, the decision of the Tribunal on this question is correct, and the Income-tax Officer has rightly disallowed this deduction. I would, therefore, answer question No. 2(a) also in the negative against the assessee and in favour of the Department. Question No. 2(b):-This question was framed by the High Court on the basis of the affidavit filed by the assessee on the 29th March, 1955. to the effect that the point raised by question No. 2(a) was argued by the assessee's counsel before the Tribunal but it has not been dealt with by it. The Tribunal, however, has definitely stated and has given reasons for coming to the conclusion that the item-whether the interest paid on bank overdrafts amounting to ₹ 46,633 or any ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Commissioner of income-tax, Bengal**. The noble Lord observed: Their Lordships agree with the High Court in holding that, albeit the income received by the wakf estate is within the definition of agricultural income in section 2(1), the sums drawn therefrom as remuneration by the appellant are not agricultural income received by the appellant, and the question of law referred to the Court should be answered in the negative. Their Lordships desire to add that a different question might haw arisen if the appellant's remuneration had been by way of a fractional part of the income of the wakf estate, or by a percentage commission. That case may be considered, if. and when, it arises, and their Lordships express no opinion thereon (underlined by me) Mr. Mazumdar, relying on the above underlined observation, submitted that here the assessee's remuneration was by a percentage commission, and, as such, the receipt of his remuneration by the assessee must be considered to be agricultural income, because it was 15% of the agricultural income itself. He further relied in support of his argument on another Privy Council decision in Raja Bejoy Singh Dudhuria v. Commissioner o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in terms of money. The assessee, therefore, received no agricnitural income as defined by the Act. He received remuneration under a contract for personal service on the basis of the deed itself calculated on the amount of profits earned by the deities payable not in specie out of any item of such property, but out of the money of the deities available for the purpose. The basis of the remuneration of the assessee was a contract, namely, the trust deed, and that was the source of his rights and liabilities. In such circumstances, it cannot be said that because the source of the money was agricultural income, the remuneration paid out of the total estimated income available out of the trust properties should be considered to be agricultural income . In my judgment, therefore, the remuneration of the assessee was not agricultural income, and, therefore, it was not exempt from tax under section 4(3) (viii)of the Act. I would, therefore, answer the fifth question also in the negative, against the assessee and in favour of the Department. All the questions submitted by the Tribunal to this Court for determination under section 66(2) are accordingly answered in the negative, again ..... X X X X Extracts X X X X X X X X Extracts X X X X
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