TMI Blog1979 (11) TMI 58X X X X Extracts X X X X X X X X Extracts X X X X ..... allowable as a revenue expenditure ? " The assessee is a public limited company, sponsored by the Tamil Nadu Government, with the main object of advancing long-term loans to industrial concerns. It underwrites the issue of capital by such concerns. On 10th December, 1966, which falls within the accounting year ended 30th June, 1967, relevant for the assessment year 1968-69, the assessee made a public issue of debentures of the total value of Rs. 1.5 crores carrying interest at 5.75% per annum. The issue price was Rs. 98 per bond of Rs. 100. The total discount on the issue of 1.5 crores of rupees thus amounted to Rs. 3,00,000. The period of redemption of the debentures was 12 years, and the assessee wrote off Rs. 12,500 being the proportionate amount of the discount for the period of six months ending with 30th June, 1967. The assessee had issued debentures carrying an interest of 4% earlier on 11th August, 1958. There was an issue of 41% debentures at a discount of 1% redeemable after the period of 10 years. The total issue came to Rs. 99,93,000 and the discount relating to these debentures was being written off periodically. In the year under consideration, a sum of Rs. 10,000 w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he relevant previous year, the accounting entries could not make any difference to the application of the principle and that, therefore, the assessee was entitled to deduction of the balance of Rs. 2,87,500. The result was that the appeal of the assessee on this point succeeded, and the matter has been brought before us on reference at the instance of the Commissioner. The first question raises a point of jurisdiction as to whether the assessee could be permitted to raise this contention before the Tribunal. The contention was that the assessee having agitated for the allowance of only Rs. 12,500 before the AAC and having obtained that allowance from the AAC, could not feel aggrieved against the decision of the AAC so as to justify an appeal to the Tribunal on this point. It was further contended that with reference to the sum of Rs. 2,87,500 the matter had not been raised before the ITO and had not been considered by him, that the matter had not also been raised before the AAC and that, therefore, the point could not be taken for the first time before the Tribunal. The jurisdiction and powers of the Tribunal have been considered in several decisions of the Supreme Court. In Hu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... further enquiry and dispose of the case on the basis of such enquiry. At page 238 it was added : " We are accordingly of the opinion that the Tribunal had jurisdiction to entertain the argument of the department in this case and to direct the Income-tax Officer to find whether any depreciation was actually allowed under the Industrial Tax Rules and whether such depreciation should be taken into consideration for the purpose of computing the written down value. " It may be seen that what the Supreme Court was concerned with in that case was whether the Tribunal could entertain a fresh submission or contention on the part of the department, which had not been considered by the AAC. In CIT v. Mahalakshmi Textile Mills Ltd. [1967] 66 ITR 710 (SC), the assessee, carrying on business in the manufacture and sale of cotton yarn, spent Rs. 93,215 for introduction of the " Casablanca conversion system ". The assessee claimed development rebate on the ground that the introduction of this system involved installation of new machinery. For the first time before the Appellate Tribunal, there was an alternative claim that the amount of Rs. 93,215 was, in any event, expenditure for current r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... On the same day, there was another decision of the Supreme Court, CIT v. S. Nelliappan [1967] 66 ITR 722 (SC). In that case, the assessee was a transport operator. The assessing officer rejected the account books and made several additions to the book profits. The additions were confirmed on appeal. Before the Tribunal the assessee raised various points, apart from objecting to the estimate of the income as made by the income-tax authorities. The Tribunal found that the estimate of the profits worked out to an average of Rs. 4,000 per vehicle, and that this estimate could not be said to be excessive or unreasonable. The Tribunal declined to deal with the other contentions raised by the assesssee on the view that those contentions had a direct bearing ultimately only on the final quantum and that the " overall quantum " was not excessive. The High Court, on reference, held that the Tribunal was bound to go into the individual items, and directed the appeal to be disposed of afresh. At the hearing before the Tribunal, pursuant to the order of the High Court, the assessee contended that cash credits of Rs. 19,796 and Rs. 32,700 assessed for the two years in appeal should be deleted. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... approximately in payment of the purchase price of goods there, of which Rs. 3,00,000 were found by the ITO assessing the assessee in Amritsar to have been the income earned in Kashmir (Indian State) and remitted to the then British India. This sum was brought to tax accordingly. In the appeal before the AAC, the amount remitted out of the profits was taken to be only Rs. 1,20,000. In the further appeal to the Tribunal, it remanded the case to the ITO for a proper enquiry and report as to whether, and if so, to what extent, the moneys remitted to British India included the profits of earlier years available for remittances. The assessee was not in a position to establish as to what were the profits available for remittances nor to show that the remittances were only out of capital. The result was that the sum assessed by the AAC was taken to be the proper amount assessable in the assessee's hands. After receipt of this report from the ITO, at the time of the hearing of the appeal, the assessee contended that even with reference to the sum of Rs. 1,20,000, the post office or the banks were the agents of the recipient and that, therefore, no moneys were brought by the assessee into B ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... non-taxablity though no such claim was made before him by the assessee. From these two decisions, it appears that where the point is taken for the first time before the appellate authorities, the appellate authorities would have a discretion not to allow the assessee to raise such a new point, when the consideration of the new point would involve investigation of facts which are not on record. Thus, the legal position is clear that neither the assessee nor the department is restricted to the plea put forward at any earlier stages, when the matter travels through the hierarchy of authorities, and that it would be open to the Tribunal to consider any fresh plea in the exercise of its discretion. Even where consequences of the acceptance of the assessee's plea would involve granting a larger amount as deduction than was demanded at the stage of assessment, the Tribunal would have jurisdiction to consider such a plea. The Tribunal has, however, discretion not to admit any fresh plea being put forward when it would involve investigation of facts. Considerable reliance was placed for the department on the decision of CIT v. Karamchand Premchand P. Ltd. [1969] 74 ITR 254 (Guj). In t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sion of the Gujarat High Court turned on a different question. It was a case where the assessee had not raised the matter on appeal before the AAC and took up the objection to the assessment for the first time before the Tribunal. The learned counsel for the department contended that as far as the sum of Rs. 2,87,500 is concerned, the present case would fall within the ratio of the Gujarat High Court. We are unable to agree with him. The assessee claimed deduction of Rs. 1,25,000 which is part and parcel of the sum of Rs. 3,00,000. It is this claim for deduction that was accepted by the AAC. Consistent with the view of the AAC, the assessee wanted a larger deduction, and that is how the matter was brought before the Tribunal. So long as the matter agitated before the Tribunal formed part and parcel of the original claim made before the AAC, it cannot be stated that the assessee was trying for the first time to agitate the question of deduction of a particular ground in second appeal. There is a distinction between a case where the assessee makes a claim for the first time before the Tribunal and a case where the assessee on the same facts prays for a larger relief. The latter cla ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt previous years. The reason was that the contention had not been raised before the ITO, and that it would also involve investigation into new questions of fact. The Tribunal on appeal held that the contention went to the root of the matter and should be considered and, therefore, directed the AAC to consider it. On a reference, it was held by the Gujarat High Court that the decision of the Tribunal was correct, that all questions, whether of law or of fact, which related to the assessment of the assessee might ordinarily be allowed to be raised by him in appeal even though it might not have been raised before the ITO, if grant of relief would follow as a consequence of the determination of such questions. It was also observed that the Tribunal rightly felt that substantial justice required in that case that the claim of the assessee, although it was advanced for the first time before the AAC, should be investigated by him. Thus, the failure to raise a point before the ITO does not involve the consequence that the assessee cannot feel aggrieved by the assessment to that extent. Similarly, an assessee could put forward a claim for a larger deduction which he had not urged before ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that there was actually no expenditure incurred by the assessee in the relevant year and that, therefore, the amount could not have been treated as deduction. It was also submitted that there was no actual receipt to the extent of Rs. 3,00,000, so that there could be any outgoing to that extent. For the assessee, the submission was that this is only in the nature of an actual issue of the bonds or debentures for Rs. 100 and payment back to the subscribers of Rs. 2 per bond and that in this sense there was an expenditure. There was no decision bearing on the question of the effect of the issue of debentures at a discount as far as the issuing company is concerned. There is, however, a decision of the Court of Appeal in the case of the recipient or the subscriber of the bonds in Lomax (Inspector of Taxes) v. Peter Dixon Son Ltd. [1944] 12 ITR (Suppl) 1 (CA). In that case, the assessee, a company, lent pound 319,600 to a Finnish subsidiary. There was an agreement to repay this amount in instalments. The Finnish company agreed to issue 680 notes of pound 500 each at a discount of 6% bearing a stated rate of interest and repayable in batches of one hundred on named dates. There was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ular amount for six consecutive years. The trustees undertook to hold the amount upon trust for taking out a deferred annuity policy. Should he die before attaining the age of 55 years the trustees were to purchase with the capital value of the deferred annuity policy an annuity for the wife of the director. The trustees took out a policy providing for an annuity of the amounts varying on the contingencies of the director or his wife predeceasing the other. There was also a provision for return of all premiums paid to the insurance society should both the director or his wife die before 1955. The trustees were also entitled to surrender the contract at any time before that date for a cash surrender value. The assessee claimed deduction of the initial sum and the yearly premia from its profits. It was held that as until 1955 the assessee company had dominion through the trustees over the sums paid at least in two circumstances and there was a possibility of there being a resulting trust in favour of the company, the sums should be treated as set apart to meet a contingency and that the payment of these sums was not a paying out or away of those sums irretrievably and did not amount ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as really laid out for the purpose of business. In the course of the judgment, Shah J., speaking for the court, observed at page 641 as follows : " In its normal meaning, the expression 'expenditure' denotes 'spending ' or ' paying out or away', i.e., something that goes out of the coffers of the assessee. A mere liability to satisfy an obligation by an assessee is undoubtedly not 'expenditure' : it is only when he satisfies the obligation by delivery of cash or property or by settlement of accounts, there is expenditure. But expenditure does not necessarily involve actual delivery of or parting with money or property. If there are cross-claims--one by the assessee against a stranger and the other by the stranger against the assessee--and as a result of accounting the balance due, only is paid, the amount which is debited against the assessee in the settlement of accounts may appropriately be termed expenditure within the meaning of section 10(2)(xv) (of the 1922 Act). " We are not satisfied that this passage is in any manner inconsistent with or runs counter to the earlier decision in the case of Indian Molasses Co. (P.) Ltd. v. CIT [1959] 37 ITR 66 (SC). The earlier decision ..... X X X X Extracts X X X X X X X X Extracts X X X X
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