1989 (2) TMI 405 - HC - Income Tax

Summary

Issues:
1. Allowability of legal expenses as revenue expenditure for assessment years 1965-66 to 1969-70.
2. Deduction of royalty liability in assessment year 1965-66.
3. Tax treatment of book credit representing royalty receivable for assessment years 1965-66, 1967-68, and 1968-69.

Analysis:

1. The first issue revolved around the allowability of legal expenses totaling specific amounts for the assessment years 1965-66 to 1969-70 as revenue expenditure. The Income Tax Officer (ITO) disallowed these expenses as capital expenditure, but the Appellate Assistant Commissioner (AAC) and the Tribunal disagreed, allowing them as revenue expenditure. The Tribunal found that the expenses were incurred solely to protect a coal mining lease, which was a capital asset. The High Court upheld the Tribunal's decision, stating that the legal expenses were rightfully treated as revenue expenditure.

2. Regarding the second issue, the deduction of royalty liability amounting to a specific sum in the assessment year 1965-66 was contested. The Tribunal determined that the liability arose in that year as the assessee had given an undertaking to pay the royalty within the relevant accounting period. The High Court concurred with the Tribunal's finding, emphasizing that the liability for royalty payment crystallized during the specific accounting year, thus allowing the deduction for that year.

3. The final issue concerned the tax treatment of book credit representing royalty receivable for the assessment years 1965-66, 1967-68, and 1968-69. The High Court referred to a previous judgment in the assessee's case, where it was concluded that the book credit on account of royalty receivable was not considered as income for those assessment years. Consequently, the High Court answered this issue in favor of the assessee.

In conclusion, the High Court ruled in favor of the assessee for questions 2 and 3, allowing the deduction of royalty liability and determining the non-taxability of book credit representing royalty receivable. However, for question 1, the court sided with the revenue, denying the allowability of legal expenses as revenue expenditure. No costs were awarded in this judgment.