1957 (12) TMI 30 - HC - Income Tax

Summary

Issues Involved:
1. Whether the sum of Rs. 40,000 paid to Mr. E.V. Crushandal is a capital expenditure or revenue expenditure.
2. Whether the eleven annas share in the Jaipuria firm belonged to Chuni Lal individually or to the family firm.
3. Whether the assessee firm was legally debarred from raising objections regarding the apportionment of the shares of profits in the hands of Chuni Lal before the Appellate Assistant Commissioner and the Income-tax Appellate Tribunal.
4. Whether the Income-tax Officer can determine a partner's status other than what is shown in the partnership deed while making the assessment.
5. Whether the Tribunal's order dismissing the appeal of the Hindu undivided family Behari Lal Beni Parshad is vitiated by not fully considering the remand report.

Detailed Analysis:

1. Capital Expenditure vs. Revenue Expenditure:
The primary issue was whether the Rs. 40,000 paid to Mr. E.V. Crushandal should be treated as capital expenditure or revenue expenditure. The court found that the amount was paid to oust Crushandal from competition, enabling the Jaipuria firm to secure the contract for armour plates without difficulty. This payment was not for acquiring stock-in-trade but to prepare the ground for securing business, making it a capital expenditure. The Tribunal's conclusion that it was a capital expenditure was upheld as there was no error in reaching this conclusion.

2. Ownership of Eleven Annas Share in Jaipuria Firm:
The second issue was whether the eleven annas share in the Jaipuria firm was Chuni Lal's individual share or belonged to the family firm. The Income-tax Officer, Appellate Assistant Commissioner, and the Tribunal all concluded that the share belonged to the family firm based on several factors:
- No capital was invested by Chuni Lal himself.
- Significant payments were made by the family firm for the Jaipuria firm's business.
- The family firm paid Baij Nath Bajoria's share upon dissolution.
- Chuni Lal had no qualifications to justify his large share except for the family's financial backing.
The court held that this was a factual determination supported by evidence, and there was no basis for interference.

3. Legal Debarment of Raising Objections:
The court addressed whether the assessee firm was legally debarred from raising objections regarding the apportionment of profits in Chuni Lal's hands. The Tribunal had held that since the family firm did not appeal the initial assessment, the Appellate Assistant Commissioner should not have entertained Chuni Lal's appeal. The court did not find any legal error in this conclusion.

4. Determination of Partner's Status by Income-tax Officer:
The court examined whether the Income-tax Officer could determine a partner's status different from what was shown in the partnership deed. The Tribunal found that the Income-tax Officer was correct in determining that Chuni Lal was a partner representing the family. The court upheld this finding as it was based on substantial evidence.

5. Consideration of Remand Report:
The final issue was whether the Tribunal's order dismissing the appeal of the Hindu undivided family was vitiated by not fully considering the remand report. The court found that the Tribunal had referred to the report and agreed with the Income-tax Officer's reasoning. The court concluded that there was no failure to consider the material facts.

Conclusion:
The applications were dismissed as the court found no merit in the claims. The findings of the Income-tax authorities were based on substantial evidence, and there was no jurisdiction for the court to interfere. The petitions were dismissed with costs, and counsel for the respondent was allowed a fee of Rs. 150.