1999 (2) TMI 61 - HC - Income Tax

Summary

Issues involved:
1. Assessment of discount on treasury bills as income from business or 'interest on securities' and apportionment of expenses under section 40A(5) of the Income-tax Act, 1961.
2. Consideration of expenses on repairs and maintenance of flats as perquisites for computing disallowance under section 40A(5) of the Act.
3. Inclusion of interest on sticky advances in the total income of the assessee for the assessment year 1975-76.

Issue 1:
The court referred to the decision in British Bank of the Middle East v. CIT [1998] 233 ITR 251, stating that discount on treasury bills is assessable as income from business, not as 'interest on securities'. Consequently, it is necessary to apportion expenses by way of salaries and perquisites for section 40A(5) purposes. The question was answered in the negative, in favor of the assessee and against the Revenue.

Issue 2:
Referring to the decision in Lubrizol India Ltd. v. CIT [1991] 187 ITR 25, the court held that expenses incurred on repairs and maintenance of flats owned by the company should be considered as perquisites for computing disallowance under section 40A(5) of the Act. The question was answered in the affirmative, in favor of the Revenue and against the assessee.

Issue 3:
The interest of Rs. 3,76,443 accrued on sticky advances was disputed. The Tribunal initially excluded it from the assessee's income based on previous decisions. However, the Department sought reference, arguing that interest on sticky advances should be taxable. The assessee relied on circulars and previous court decisions to support their position. The court ultimately held that interest on sticky advances must be treated as income of the assessee and is taxable, following the decisions in State Bank of Travancore v. CIT [1986] 158 ITR 102 and Kerala Financial Corporation v. CIT [1994] 210 ITR 129. The question was answered in the negative, in favor of the Department and against the assessee.

The judgment was delivered by S. H. KAPADIA J. and the reference was disposed of with no order as to costs.