1957 (4) TMI 58 - HC - Income Tax

Summary

Issues Involved:
1. Deduction of litigation expenses of Rs. 10,000.
2. Deduction of interest paid on bank overdrafts amounting to Rs. 46,633.
3. Treatment of forest income from Kharagpur Circle as agricultural income.
4. Treatment of forest receipts from Bankura forests as capital receipts or agricultural income.
5. Exemption of Rs. 21,274 received as shebait of trust properties as agricultural income.

Detailed Analysis:

Issue 1: Deduction of Litigation Expenses of Rs. 10,000

The assessee claimed a deduction of Rs. 10,000 under section 12(2) of the Indian Income-tax Act for litigation expenses contributed to Lala Manmohan Das. The Tribunal found that the shares in question were investments and not stock-in-trade, and the litigation expenses were not incurred for earning dividends, as the company had ceased to pay dividends for a long time. The Tribunal concluded that the expenses were not laid out for protecting the investment as alleged by the assessee. The High Court affirmed this decision, stating that only expenditures incurred solely for earning income are deductible under section 12(2). Therefore, the litigation expenses were not allowed as a deduction.

Issue 2: Deduction of Interest Paid on Bank Overdrafts Amounting to Rs. 46,633

The assessee claimed a deduction for interest paid on bank overdrafts. The Tribunal found that the overdrafts were primarily for personal liabilities such as income tax, land revenue, and personal drawings. The High Court noted that interest on borrowed money for personal liabilities is not deductible under section 12(2). The assessee's argument that interest paid for call money for purchasing shares should be allowed was also rejected, as the shares had not declared dividends and the expenditure was considered capital expenditure for acquiring investments. Thus, the deduction for interest paid on bank overdrafts was disallowed.

Issue 2(b): Argument on Deduction of Interest Paid on Bank Overdrafts

The High Court addressed whether the claim regarding the deduction of interest paid on bank overdrafts was argued before the Tribunal. The Tribunal stated that this point was not argued by the assessee's counsel, and the High Court accepted this finding, answering the question in the negative.

Issue 3: Treatment of Forest Income from Kharagpur Circle as Agricultural Income

The High Court referred to its earlier decision in Sir Kameshwar Singh v. Commissioner of Income-tax, Bihar and Orissa, where it was held that forest income is not "agricultural income" within the meaning of section 2(1) of the Act. Consequently, the forest income from Kharagpur Circle was not treated as agricultural income and was taxable under the Income-tax Act.

Issue 4: Treatment of Forest Receipts from Bankura Forests

Similarly, the High Court applied its previous ruling that forest receipts are not agricultural income. The forest receipts from Bankura forests were not considered capital receipts or agricultural income, and thus were taxable.

Issue 5: Exemption of Rs. 21,274 Received as Shebait of Trust Properties

The assessee claimed that the remuneration received as a shebait of trust properties was agricultural income and exempt from taxation. The Tribunal found that the remuneration was not agricultural income but was received under a contract for personal service, calculated on the total income from the trust properties. The High Court referred to the Privy Council decision in Premier Construction Co. Ltd. v. Commissioner of Income-tax, which established that income not falling within the definition of agricultural income does not assume that character by reason of its source. Therefore, the remuneration received by the assessee was not exempt from tax.

Conclusion:
All questions were answered in the negative, against the assessee and in favor of the Department. The Department was entitled to costs assessed at Rs. 250.