1962 (2) TMI 104 - HC - Income Tax

Summary

Issues:
1. Whether the arrangement between the assessee and Bharatiya Vidya Bhavan for publishing books was of a commercial nature and if the loss incurred is allowable under section 10 of the Income-tax Act.
2. Whether the Appellate Tribunal was correct in not considering the alternative claim for allowing the loss under section 12 of the Act.

Analysis:

Issue 1:
The case involved a public limited company engaged in publishing books in collaboration with Bharatiya Vidya Bhavan. The company incurred a loss of Rs. 28,000 in publishing eight books. The central question was whether this arrangement was commercial in nature and if the loss could be claimed under section 10 of the Income-tax Act. The company argued that its intention was profit-making, indicating a commercial transaction. However, the Tribunal concluded that the loss was essentially a donation to Bharatiya Vidya Bhavan, not a commercial venture. The correspondence and terms of the agreement supported this view, as the company agreed to bear losses up to Rs. 3,500 per book, with profits going to the Bhavan. The Court upheld the Tribunal's decision, ruling against the assessee and denying the claim for the loss under section 10.

Issue 2:
The second issue revolved around the Tribunal's refusal to consider an alternative claim for allowing the loss under section 12 of the Income-tax Act. The Tribunal rejected this new plea, stating it could not be entertained at that stage. The company argued that it should have been allowed to raise this contention, citing precedents where additional grounds were permitted. However, the Court agreed with the Tribunal's decision, emphasizing that allowing the claim under section 12 would conflict with the characterization of the loss as a donation. The Court held that the Tribunal's discretion in disallowing the new claim was reasonable and not arbitrary. Additionally, it was noted that for a claim under section 12, there must be existing income against which the loss can be deducted. Referring to relevant case law, the Court affirmed the Tribunal's decision, ruling in favor of the revenue department on this issue.

In conclusion, the Court answered both questions against the assessee, upholding the Tribunal's decisions. The company was directed to pay the costs of the reference, and the judgment was certified for two counsel.