TMI Blog1984 (8) TMI 10X X X X Extracts X X X X X X X X Extracts X X X X ..... December 31, 1965. The assessee submitted its return for the aforesaid period relevant to the assessment year 1966-67 wherein it declared a net loss of Rs. 5,84,746. In the said return, the assessee claimed deduction of a sum of Rs. 2,36,007 paid by it as interest to banks outside India, i.e., in Paris, on loans taken by the assessee. The assessee also claimed deduction of a sum of Rs. 3,50,172 on account of expenses. The assessee also claimed depreciation on various items of machinery and furniture. The Income-tax Officer, Jaipur, vide his assessment order dated December 30, 1967, assessed the assessee on a total income of Rs. 9,67,427. The Incometax Officer disallowed the deduction of Rs. 2,36,007 towards interest claimed by the assessee on the ground that the said interest had accrued to the foreign banks outside India and the assessee was liable to deduct tax under the Act and in view of the provisions of section 40(a)(i) of the Act, the deduction of the said interest could not be allowed to the assessee. The Income-tax Officer also disallowed expenses to the extent of Rs. 3,26,794 which are related to the period prior to February 10, 1964, and also disallowed the expenses o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on in excess of 12 months in respect of those assets which were used on the basis of actual user in view of the fact that the assessee had been permitted to prepare the accounts for a period in excess of 12 months. With regard to the camp equipment, the Appellate Assistant Commissioner held that the depreciation should be allowed at the rate of 15 per cent. as claimed by the assessee instead of 10 per cent. allowed by the Income-tax Officer, for the reason that there were no permanent houses for the staff in the desert area where drilling operations were being carried on and the equipment and furniture were being used for the purpose of boarding and lodging provided to the staff. Against the aforesaid order of the Appellate Assistant Commissioner, two appeals were filed before the Tribunal, one by the Revenue and the other by the assessee. In the appeal filed by the Revenue, objection was taken to the order of the Appellate Assistant Commissioner in so far as it related to the deletion of the disallowance of the sum of Rs. 2,36,007 paid as interest to the foreign banks by the assessee and also the allowance of depreciation at the rate of 15 per cent. on camp equipment. The asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tled to the deduction of the same. The Tribunal, however, disagreed with the Appellate Assistant Commissioner that for the allowance of depreciation, camp equipments used for the purpose of providing lodging facilities to the members of the staff would fall under the category "furniture" in a boarding house. According to the Tribunal, the assessee was entitled only to the normal depreciation at 10 per cent. in respect of such equipment. The appeal of the Department was, therefore, allowed to this extent. With regard to the appeal of the assessee, the Tribunal dismissed the said appeal and upheld the orders of the Income-tax Officer and the Appellate Assistant Commissioner disallowing the assessee's claim for expenses of Rs. 3,26,794 and Rs. 19,126 on the ground that the said expenditure related to period prior to the previous year. Feeling aggrieved by the order of the Tribunal, two reference applications were submitted under section 256(1). Reference Application No. 111 (Jp. ) of 1972-73 was submitted by the Additional Commissioner and Reference Application No. 116 (Jp.) of 1972-73 was submitted by the assessee. On the basis of the aforesaid applications, the Tribunal has refer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... towards interest paid by it to the non-resident banks. As indicated earlier, the Appellate Assistant Commissioner and the Tribunal have held that the aforesaid amount was income of the non-resident foreign bank which was chargeable to tax and since the assessee had paid the tax in respect of the aforesaid amount, deduction of the said amount should be allowed from the income of the assessee. Shri Surolia questions the correctness of the aforesaid findings recorded by the Appellate Assistant Commissioner and the Tribunal and has submitted that the tax which was recovered from the assessee should not be treated as tax paid for the purposes of section 40(a)(i) and that the Appellate Assistant Commissioner and the Tribunal have erred in allowing the said deduction. Shri Aneja has, on the other hand, supported the findings recorded by the Appellate Assistant Commissioner and the Tribunal in this regard and has submitted that the amount of tax which has been recovered from the assessee must be deemed to be tax paid under Part B of Chapter XVII and since the tax had already been paid, the said amount of interest could not be added in the income of the assessee and the Appellate Assistant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for recovery initiated against the assessee. As observed by the Tribunal, the object of section 40(a)(i) is to protect the interest of the Revenue by ensuring that in respect of interest chargeable under the Act and payable outside India, the tax payable by the non-resident is either paid or deducted in cases where the non-resident does not have any agent in India from whom it can be recovered. From this point of view, it is immaterial whether the Revenue has received payment of the tax due either by a voluntary act on the part of the assessee or by initiation of the recovery proceedings against the assessee. It may also be observed that under the Act an involuntary payment of tax, whether by way of deduction at source or by way of recovery under the provisions of the Act, is regarded as tax paid. In this connection, we may refer to section 199 of the Act which provides that any deduction made in accordance with the provisions of sections 192 to 194, section 194A, section 194B, section 194BB, section 194C, section 194D and section 195 of the Act and paid to the Central Government should be treated as payment of tax on behalf of the person from whose income the deduction was made. S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essment. In these circumstances, we are of the opinion that the Appellate Assistant Commissioner and the Tribunal were right in deducting the sum of Rs. 2,36,007 which was added to the income by the Income-tax Officer and since the assessee in their letter addressed to the Appellate Assistant Commissioner has expressed its desire not to object to the act of recovery made from the bank guarantee, we do not consider it necessary to go into the question as to whether the amount of interest that was paid by the assessee to the non-resident foreign banks was chargeable to tax or not and also the question as to whether the assessee should be regarded as the agent of the non-resident foreign banks under section 163 of the Act. We may now come to question No. 1 referred in Reference Application No. 116 of 1972-73 relating to the disallowance of expenses to the tune of Rs. 3,26,794 and Rs. 19,126. As pointed out earlier, the aforesaid expenses have been disallowed by the Tribunal on the ground that the same related to the period prior to the previous year relevant to the assessment year in question. Shri Aneja has submitted that the aforesaid expenses were incurred by the assessee in conn ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r curious claim is put forward by the Taxing Department that the profits of this venture should be assessed without giving any relief to the assessee with regard to the expenses incurred in connection with this transaction prior to the year 1950-51. The sum of Rs. 1,770 that was paid for brokerage was allowed inasmuch as that amount was paid in the year of account, but the annual ground rent which the assessee paid in years previous to the year of account was disallowed on the ground that this expenditure was not incurred in the year of account and that contention was accepted by the Tribunal. In accepting this contention, the Tribunal with respect, has overlooked the nature of a single venture in the nature of trade. In the case of a single venture, the profits become assessable only when that venture comes to an end and in this case the venture came to an end in the year of account. It was only then that the profits could be ascertained and the profits subjected to tax. Therefore, the question that arose in the year of account was : What were the real profits from a commercial point of view which the assessee earned ? It is impossible to contend that the real profits were the amo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Some of these expenses related to the period prior to the incorporation of the assessee-company. The said expenses were in the nature of travelling expenses of the directors to explore possibilities of business, for procuring import licence, to collect details or secure orders and to study techniques of security printing, The said expenses were disallowed by the Income tax Officer on the ground that these were pre-incorporation expenses of the company and were capital in nature. The Appellate Assistant. Commissioner held that the expenses were all of a revenue nature and as they had been incurred by the promoters of the assessee-company in connection with the business which was subsequently taken over by the company in its incorporation and they were allowable as business expenses. The Tribunal, however, disallowed a part of expenses on the ground that they were capital expenses. The High Court disagreed with the Tribunal that the expenses were capital in nature and held that the expenditure incurred by a businessman or his agent on foreign tours to acquaint himself with new and modern techniques is revenue in character. The High Court observed that the main consideration which ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has allowed the deduction of expenditure for the period subsequent to February l6, 1964, i.e., from the date of execution of the contract. In other words, the income-tax authorities have allowed the deduction of expenditure for a period beyond the previous year relevant to the assessment year in question. If the reason given by the Tribunal that the said expenditure related to the period prior to the previous year to I he assessment year in question is to be applied, then the expenditure for the period from February 16, 1964, till September 10, 1964, should also have been disallowed. We, are, however, of the opinion that the Tribunal was riot right in disallowing the aforesaid expenditure that was claimed by the assessee on the ground that it related to the period prior to the previous year relevant to the assessment year in question. In the present case, the only income that was derived by the assessee in India was from the contract which was entered into by it with the Oil and Natural Gas Commission. The aforesaid contract was in the nature of a single transaction and the expenditure that was claimed by the assessee has been found to be incurred in connection with that contract. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ause (1) and clause (2) depreciation at the rate of 15 per cent. is prescribed in respect of "furniture and fittings used in hotels, restaurants, boarding houses, schools, colleges and other educational institutions, libraries, welfare centres, meeting halls, cinema houses, theatres and circuses arid for furniture and fittings let out on hire for use on the occasion of marriages and similar functions." The reason why a higher rate of 15 per cent. has been prescribed for the furniture and fittings referred to in clause (2) appears to be that the said furniture and fittings are to be used in places where it is likely to be put, to greater wear and tear. In the present case, as pointed out by the Appellate Assistant Commissioner, the assessee was required to conduct drilling operations in a desert area and there were no permanent houses for the stay of staff of the assessee and the ONGC near the drilling site. In order to provide accommodation to members of the staff and the staff of the ONGC, the assessee had to make arrangements for lodging facilities at the site and the camp equipment and furniture that were provided by the assessee at the site and was being used for the purpose of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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