1988 (12) TMI 80 - HC - Income Tax

Summary

Issues Involved:
1. Deduction for expenditure on guest house rent u/s 30 for assessment years 1968-69 and 1969-70.
2. Deduction for maintenance expenditure of guest house u/s 37(3) for assessment years 1968-69 and 1969-70.
3. Taxability of Rs. 22,275 u/s 41(1) for the assessment year 1969-70.

Summary:

Issue 1: Deduction for Expenditure on Guest House Rent u/s 30
For the assessment years 1968-69 and 1969-70, the Tribunal allowed the deduction for expenditure on guest house rent (Rs. 8,400 and Rs. 4,200 respectively). The court noted that these questions were covered by its judgment in the assessee's own case for the assessment year 1967-68 (Income-tax Reference No. 99 of 1976, dated November 18, 1988). Following the said judgment, both questions were answered in the affirmative and in favour of the assessee.

Issue 2: Deduction for Maintenance Expenditure of Guest House u/s 37(3)
Similarly, for the assessment years 1968-69 and 1969-70, the Tribunal allowed the deduction for maintenance expenditure of the guest house (Rs. 6,060 and Rs. 2,770 respectively). These questions were also covered by the court's judgment in the assessee's case for the assessment year 1967-68. Consequently, both questions were answered in the affirmative and in favour of the assessee.

Issue 3: Taxability of Rs. 22,275 u/s 41(1)
For the assessment year 1969-70, the Tribunal held that the sum of Rs. 22,275 was not assessable u/s 41(1). The assessee had credited this amount to its profit and loss appropriation account, representing commission payable to Shri G. D. Modi in an earlier year, which was allowed as a deduction. The Income-tax Officer and the Appellate Assistant Commissioner included this amount u/s 41(1), but the Tribunal, following its earlier order for the assessment year 1967-68, ruled in favour of the assessee. The Tribunal's conclusion was supported by decisions in Kohinoor Mills Co. Ltd. v. CIT, Ambika Mills Ltd. v. CIT, and J. K. Chemicals Ltd. v. CIT.

The court reiterated that u/s 41(1), the liability does not cease merely because it is barred by limitation; it ceases when the assessee unequivocally expresses the intention not to honor the liability. In this case, the Tribunal found that the liability did not cease, and the court upheld this finding, answering the third question in the affirmative and in favour of the assessee.

Conclusion:
All questions were answered in the affirmative and in favour of the assessee. No order as to costs.