1994 (8) TMI 5 - HC - Income Tax

Application For Rectification, Application For Reference, Chit Fund, Question Of Law, Rectification Of Mistakes

Summary

Issues:
1. Interpretation of the Tribunal's decision regarding the miscellaneous application.
2. Correctness of the Tribunal's decision on the chit fund business expenses.
3. Application of mutuality principle to the appellant's case.
4. Rejection of the claim of mercantile system of accounting.

Analysis:

Issue 1: Interpretation of the Tribunal's decision regarding the miscellaneous application
The assessee sought a direction to the Income-tax Appellate Tribunal to refer certain questions for the opinion of the court. The Tribunal had dismissed the application under section 254(2) of the Income-tax Act, 1961, stating that the arguments presented were based on misconception and wrong appreciation of facts. The Tribunal concluded that the application was an attempt to review its order and not a petition pointing out mistakes. The court upheld the Tribunal's decision, emphasizing that the questions raised were self-evident, and there was no need to refer them.

Issue 2: Correctness of the Tribunal's decision on the chit fund business expenses
The assessee, engaged in chit fund business, claimed an expenditure of Rs. 5,68,500 as the amount paid by it as bid on its own chits for the assessment year 1981-82. The Assessing Officer added back a portion of this amount to the total income of the assessee, which was later deleted by the Commissioner of Income-tax (Appeals). The Tribunal, in its order, concluded that the bid amount on own chits and the commission amounts were outside the ambit of the Income-tax Act due to mutual transactions, thus not allowing the claimed expense or taxing the income to that extent.

Issue 3: Application of mutuality principle to the appellant's case
The Tribunal found that the appellant's activities related to contributing its own chits, bidding on own chits, and suffering losses on own chits were mutual transactions between itself and other subscribers. The Tribunal held that these transactions were outside the scope of the Income-tax Act, and hence, the expenses claimed were not allowable, and the income shown was not taxable to that extent. The Tribunal's decision was based on the principle of mutuality, considering the specific services rendered only to members and not outsiders.

Issue 4: Rejection of the claim of mercantile system of accounting
The Tribunal rejected the claim of the appellant regarding the mercantile system of accounting regularly followed under section 145. The Tribunal did not accept the loss of Rs. 5,68,600 incurred upon bidding by the company during the year. The court found no merit in the application and dismissed it without any order as to costs.

In conclusion, the court upheld the Tribunal's decisions on the interpretation of the miscellaneous application, the chit fund business expenses, the application of the mutuality principle, and the rejection of the claim of the mercantile system of accounting. The application was dismissed, and no costs were awarded.