1993 (9) TMI 80 - HC - Income Tax

Summary

Issues Involved:
1. Applicability of Section 40(c) of the Income-tax Act, 1961 to corporate bodies.
2. Interpretation of the term "person" in Section 40(c).
3. The relevance of the capacity in which the payment was made.

Issue-wise Detailed Analysis:

1. Applicability of Section 40(c) of the Income-tax Act, 1961 to corporate bodies:
The primary issue was whether Section 40(c) of the Income-tax Act, 1961, which restricts the deduction of certain expenditures, applies to payments made to corporate bodies. The assessee, Filtrona India Ltd., argued that Section 40(c) was only applicable to individuals and not to corporate entities. The Tribunal and the Commissioner of Income-tax disagreed with this interpretation, holding that the term "person" in Section 40(c) includes corporate bodies. The High Court upheld this view, stating that the definition of "person" in Section 2(31) of the Act explicitly includes a company, and thus, Section 40(c) applies to corporate bodies as well.

2. Interpretation of the term "person" in Section 40(c):
The court analyzed the term "person" as defined in Section 2(31) of the Act, which includes an individual, a Hindu undivided family, a company, a firm, an association of persons or a body of individuals, a local authority, and every artificial juridical person. The court emphasized that the word "person" in Section 40(c) should not be restricted to individuals alone. The court stated, "It is a well-settled rule of interpretation that if the language of the statute is clear and explicit, effect must be given to it." Therefore, the court concluded that the term "person" in Section 40(c) encompasses all categories specified in Section 2(31), including companies.

3. The relevance of the capacity in which the payment was made:
The assessee contended that the payment of Rs. 2,00,000 to Killick Nixon Ltd. should be examined to determine if it was made in its capacity as a person substantially interested in the assessee-company or in any other capacity. The court noted that this issue was not raised at any stage before the Income-tax Officer, the Commissioner, or the Tribunal. The court held that the question of the capacity in which the payment was made is a factual matter and not a question of law. Therefore, the court declined to examine this issue, stating, "We do not propose to go into such a controversy raised for the first time in this reference before us, because, according to us, it is not a question of law at all."

Conclusion:
The High Court concluded that Section 40(c) of the Income-tax Act, 1961 applies to all categories of persons specified in Section 2(31), including corporate bodies. The court rejected the assessee's contention that the term "person" in Section 40(c) is restricted to individuals. The court also declined to examine the factual issue of the capacity in which the payment was made as it was not raised at any prior stage. The question referred to the court was answered in the affirmative, in favor of the Revenue and against the assessee. No order as to costs was made.