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Issues: Allowability of hire charges, repair charges, and legal charges under section 10(2)(v) and section 10(2)(xv) of the Indian Income-tax Act for a business of film distribution and exhibition.
Analysis: The case involved a reference under section 66 of the Indian Income-tax Act regarding the allowability of expenses incurred by the assessee on hire charges, repair charges, and legal charges under section 10(2)(v) and section 10(2)(xv) of the Act. The assessee carried on the business of film distribution and exhibition, but due to machinery theft, the film exhibition business was temporarily halted for three years. The machinery was later recovered, and the assessee incurred hire charges, repair charges, and legal charges in the process. The main contention was whether these expenses could be claimed as allowable deductions under the Income-tax Act. The department argued that the businesses of film distribution and exhibition were distinct, and since the film exhibition business was not operational for three years, the expenses incurred during that period were not allowable. On the other hand, the assessee contended that the two businesses were closely allied and should be treated as one business. The Income-tax Appellate Tribunal upheld the assessee's claim, leading to the reference to the High Court for a decision. In analyzing the case, the Chief Justice noted the distinction between the present case and previous judgments cited by the department. The judgment in Liquidators of Pursa Ltd. v. Commissioner of Income-tax dealt with a case where the business had ceased finally, unlike the present situation where the film exhibition business was temporarily halted due to the machinery theft. Another case cited was Machinery Manufacturers Corporation Ltd. v. Commissioner of Income-tax, where depreciation was disallowed as no business was conducted during the accounting year. The Chief Justice opined that the film distribution and exhibition businesses were closely linked, and in the unique circumstances of the case, the expenses incurred were allowable deductions under section 10(2)(v) and 10(2)(xv) of the Income-tax Act. Therefore, the Chief Justice answered the question in the affirmative, allowing the expenses claimed by the assessee and awarding costs. Justice Falshaw concurred with the decision, leading to the conclusion that the hire charges, repair charges, and legal charges were allowable under the specified sections of the Income-tax Act for the combined film distribution and exhibition business of the assessee.
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