TMI Blog1984 (9) TMI 5X X X X Extracts X X X X X X X X Extracts X X X X ..... is a company incorporated under the Companies Act, 1956. It owned two ships, namely, s. s. "Bharat Bhushan " and s. s. "Bharat Kesari ", some time during the year under consideration. They had been purchased many years earlier and their written down value in the previous year was nil. During the year under consideration, the assessee sold s. s. "Bharat Kesari " for Rs. 16,41,000. This was under an agreement dated August 22, 1967, and the entire amount was payable in rupees. The other ship " Bharat Bhushan " was sold by the assessee to Phoenix Enterprise Co. Ltd., Hong Kong, and the amount of consideration mentioned in the agreement was 96,000 pounds, of which a moiety was payable forthwith. The balance amount of 48,000 pounds was payable to the assessee in four six-monthly instalments of 12,000 pounds each. These were paid on April 1, 1968, October 1, 1968, April 1, 1969, and October 1, 1969 respectively. On November 19, 1967, the pound sterling was devalued and in terms of the Indian rupee, its cost or value came down from Rs. 21 to Rs. 18 per pound. In the course of the assessment proceedings for the year under consideration, the assessee claimed that it should be allowed deducti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o years. In other words, 24,000 pounds was payable in the very next year and 24,000 pounds in the year thereafter. It was accordingly urged that these two amounts of 24,000 pounds each were taxable in those years and not during the year under consideration. In the alternative, it was urged that if the Tribunal held that the difference between the sale price and the written down value was chargeable to income-tax as income of the previous years under consideration and the Indian rupee equivalent to 96,000 pounds was to be determined, for which purpose the value of pound sterling was to be taken at Rs. 21, which was the rate of exchange on the date of sale of the ship s. s. " Bharat Bhushan ", the assessee was entitled to claim deduction by way of devaluation loss on account of devaluation of the sterling in November 1967. It was urged that this was allowable under section 41(1) of the Income-tax Act. The Tribunal considered the submissions made by the parties and came to the conclusion that the expression " moneys payable... " occurring in subsection (2) of section 41 connoted simple indebtedness without reference to the time of payment. In other words, according to the Tribunal, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e " and " sold " occurring in sub-sections (2) and (3) shall have the same meaning as in sub-section (1) of section 32. If one turns to sub-section (1) of section 32, it is observed that " moneys payable " in respect of any building, machinery, plant or furniture would include " the price for which it was sold " when the same has been sold. It is obviously not possible, in view of these provisions, to read the expression " moneys payable " in sub-section (2) of section 41 to mean the net amount payable and not the gross amount of the price. This, however, would not imply that the full amount becomes chargeable to tax as deemed income of the business or the profession. There is nothing to warrant the conclusion reached by the Mysore High Court that the fiction can go only thus far and no further. We must now consider the Bombay decision. In Akola Electric Supply Co.'s case [1978] 113 ITR 265, the headnote (iii) reads as under: " A legal fiction is to be limited to the purpose for which it has been created and cannot be extended beyond that legitimate frame. Under the legal fiction enacted in section 41(2), a business is deemed to be in existence only for the purpose of bringing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r has submitted and, we find considerable force in his submission, that the Tribunal was in error in concluding that the entire amount of 96,000 pounds, subject to the claim of deduction of brokerage and travelling expenses, should be brought to tax in the previous years under consideration. The consideration amount of 96,000 pounds is mentioned in clause I of the memorandum of agreement dated June 28, 1967, pertaining to the vessel s.s. " Bharat Bhushan ". The mode of payment of this amount is to be found in clauses 2, 3 and 14. According to Mr. Dastur's submission, it would not be proper to hold that the balance amount of 48,000 pounds remaining unpaid when the purchaser obtained delivery could be regarded as moneys which had become due during the previous year. The distinction between the amount or debt owing and the amount and debt due is now well-settled and we would refer to the decision of the Supreme Court in Kesoram Industries Cotton Mills Ltd CWT [1966] 59 ITR 767. That was a decision pertaining to wealth-tax and the same principle was subsequently applied to the question of relief under section 80J of the Income-tax Act in CIT v. National Organic Chemical Industries ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
