1996 (8) TMI 70 - HC - Income Tax

Development Allowance, Expenditure On Maintenance, High Court, Power To Reframe Question, Weighted Deduction

Summary

Issues:
Interpretation of rule 6AA under the Income-tax Act, 1961 for pending assessments, Application of rule 6AA for expenses incurred before its effective date, Entitlement to weighted deduction under section 35B(1)(b)(ix).

Analysis:
The High Court of GAUHATI was tasked with answering questions referred by the Income-tax Appellate Tribunal regarding the applicability of rule 6AA under the Income-tax Act, 1961. The case involved a limited liability company engaged in tea business claiming deductions for expenses incurred outside India. The Assessing Officer allowed the deduction, but the Commissioner of Income-tax reversed it suo motu. The Tribunal, however, allowed the deduction under section 35B(1)(b)(ix), which led to the Revenue requesting the Tribunal to refer the questions to the High Court.

The primary contention was whether the deduction under section 35B(1)(b)(ix) was applicable to the case. The Revenue argued that the provision was prospective and not applicable to the relevant assessment year of 1981-82. They relied on previous court decisions to support their position that rule 6AA, being substantive law, had a prospective effect. The assessee did not dispute this argument but suggested reframing the question to focus on the real controversy regarding the deduction for maintaining a warehouse outside India.

The High Court agreed with the assessee's argument and reframed the question to determine whether the assessee was entitled to a deduction under section 35B(1)(b)(iv) for expenses related to maintaining a warehouse outside India. After reframing the question, the Court held that the assessee was indeed entitled to the deduction under section 35B(1)(b)(iv). The Court emphasized that the power to reframe a question should arise from the Tribunal's order and should not introduce entirely new issues not considered by the Tribunal.

In conclusion, the High Court ruled in favor of the assessee, allowing the deduction under section 35B(1)(b)(iv) and reframing the question to address the real controversy in the case. The Court's decision highlighted the importance of framing questions that accurately reflect the issues at hand and align with the provisions of the Income-tax Act.