1994 (1) TMI 59 - HC - Income Tax

Summary

Issues:
1. Deduction of theatre rent for 'Ad-Shorts' beyond the accounting period.
2. Application of section 52(2) regarding property transfer.
3. Deduction of theatre rent for 'Ad-Shorts' for a different assessment year.

Analysis:

Issue 1: Deduction of theatre rent for 'Ad-Shorts' beyond the accounting period
The assessee had an arrangement with cinema theatres for screening advertisement films and slides. The Appellate Assistant Commissioner allowed a deduction of Rs. 51,700 as theatre rent falling beyond the accounting period. The Tribunal upheld this decision, stating that liabilities accrued within the accounting year should be deductible, even if services were yet to be rendered. The Tribunal's decision was supported by the Supreme Court's ruling in Calcutta Co. Ltd. v. CIT [1959] 37 ITR 1. The High Court affirmed the Tribunal's decision, citing the Allahabad High Court's ruling that if an expenditure was laid out exclusively for business purposes, it should be fully allowable under the Income Tax Act.

Issue 2: Application of section 52(2) regarding property transfer
The Tribunal found that the provisions of section 52(2) could not be applied, even though the fair market value of the property transferred exceeded the disclosed sale consideration by more than 15%. The High Court noted that the decision in K. P. Varghese v. ITO [1981] 131 ITR 597 (SC) was against the Revenue on this issue. Consequently, the High Court ruled in favor of the assessee, affirming the Tribunal's decision against the Revenue.

Issue 3: Deduction of theatre rent for 'Ad-Shorts' for a different assessment year
For a different assessment year, the Tribunal upheld the Appellate Assistant Commissioner's decision to allow a deduction of Rs. 2,34,302 as theatre rent for 'Ad-Shorts' falling beyond the accounting period. The High Court, relying on the same principles as in Issue 1, affirmed the Tribunal's decision, answering the question in the affirmative and against the Revenue.

In conclusion, the High Court upheld the decisions of the Tribunal and Appellate Assistant Commissioner regarding the deduction of theatre rent for 'Ad-Shorts' beyond the accounting period and rejected the Revenue's appeal on the application of section 52(2). The judgments were based on established legal principles and previous court rulings, ensuring that expenses incurred for business purposes were allowable deductions under the Income Tax Act.