1933 (4) TMI 14 - HC - Income Tax

Summary

Issues:
Assessment under sec. 12 for income derived from property and buildings on leased land, Allowance for expenditure incurred in erecting buildings, Calculation of deduction for expenditure incurred in erecting buildings.

Analysis:
The judgment involves an appeal by the Commissioner of Income Tax from a High Court decision regarding the assessment of income tax for a Hindu undivided family. The assessment included income derived from property owned by the assessee and rents from buildings erected on land leased from the Agra Cantonment authority. The main issue was whether the assessment should be made under sec. 9, sec. 10, or sec. 12 of the Indian Income Tax Act, 1922.

The High Court answered the first question by holding that the assessment should be made under sec. 12, which was in line with the Commissioner's approach. However, the Court also allowed a deduction for the expenditure incurred in erecting the buildings, which the Commissioner appealed against. The Court held that the deduction for the year of assessment should be one-thirtieth of the amount expended in erecting the buildings.

The relevant sections of the Act discussed in the judgment were secs. 3, 4, 6, 9, 10, and 12. Sec. 12 deals with income, profits, and gains from sources not covered under other heads and allows for the deduction of expenditure incurred solely for making or earning such income. The Court's decision to allow a deduction based on the expenditure incurred in erecting the buildings was challenged by the Commissioner.

The Privy Council, after considering the case and the provisions of sec. 12, concluded that the allowance for expenditure incurred must be related to the year in which the income, profits, and gains were derived. Therefore, the deduction for expenditure incurred many years before the assessment year was not justified under sec. 12. The Court reversed the High Court's decision on the allowance for expenditure and allowed the Commissioner's appeal. The respondents were directed to pay the costs of the appeal.

In summary, the judgment clarified the application of sec. 12 for assessing income derived from property and buildings on leased land, addressed the allowance for expenditure incurred in erecting buildings, and emphasized the need for the deduction to be related to the year of assessment as per the provisions of the Income Tax Act.