1992 (9) TMI 24 - HC - Income Tax

Summary

Issues:
1. Allowability of royalty as a business expenditure for the assessment year 1972-73.
2. Assessment of interest on fixed deposits under the head 'Business income'.

Royalty as Business Expenditure:
The High Court of Calcutta addressed the issue of whether the royalty payment of Rs. 3,45,600 was allowable as a business expenditure for the assessment year 1972-73. The Tribunal had allowed this deduction based on an agreement executed between the assessee-company and Oberoi Hotels (India) Pvt. Ltd. The Court noted that the liability for this payment arose from an agreement signed on June 15, 1972, which could not be claimed as a business expenditure for the previous year commencing on April 1, 1971. The Court disagreed with the Tribunal's reasoning and held that the liability for royalty payment could only be claimed as a business expenditure in the subsequent year, commencing on April 1, 1972. Therefore, the Court answered the first question in the negative and in favor of the Revenue.

Assessment of Interest on Fixed Deposits:
Regarding the assessment of interest on fixed deposits, the Tribunal observed that the interest earned on fixed deposits made under rule 3A of the Companies (Acceptance of Deposits) Rules, 1975, could not be isolated from the payment of interest made by the assessee-company on the total deposits received from the public. The Court agreed with the Tribunal, stating that the earning of interest on fixed deposits is directly related to the receipt and acceptance of aggregate deposits from the public. The interest on fixed deposits should be treated as business income and assessed under the head 'Profits and gains of business or profession'. Therefore, the Court answered questions 2 and 3 in the affirmative and in favor of the assessee.

Conclusion:
The High Court of Calcutta ruled on the allowability of royalty as a business expenditure and the assessment of interest on fixed deposits, providing clarity on the treatment of these financial aspects for the relevant assessment year. The judgment highlighted the importance of adhering to legal provisions and agreements in determining tax liabilities and income classifications.