1987 (8) TMI 29 - HC - Income Tax

Assessment, Business Expenditure, Depreciation, Entertainment Expenditure, Income, Industrial Company, Interest, Limitation

Issues Involved:
1. Time-barred assessment orders under Section 153(1) of the Income-tax Act, 1961.
2. Taxability of realizations by the official liquidator as income.
3. Deduction of interest payable to creditors in the computation of income.
4. Ownership and depreciation of cinema theatre assets.
5. Requirement of show cause notice before levying penal interest.
6. Obligation of the Income-tax Officer to reduce or waive penal interest without a petition.
7. Admission of additional evidence for reduction or waiver of penal interest.
8. Classification of the assessee as an industrial company.
9. Entitlement to relief under Section 80G of the Income-tax Act, 1961.
10. Classification of expenditure on refreshments as entertainment expenditure.

Issue-wise Detailed Analysis:

1. Time-barred Assessment Orders:
The Tribunal held that the assessment orders for the years 1969-70 to 1971-72 were not time-barred under Section 153(1) of the Income-tax Act, 1961, due to the provisions of Explanation (1) to the said sub-section. This conclusion followed the decision in Golcha Properties' case [1987] 166 ITR 259 (Raj). The High Court affirmed this view, answering the question in the affirmative and against the assessee.

2. Taxability of Realizations by the Official Liquidator:
The Tribunal's decision that realizations made by the official liquidator by running the business of the assessee-company are taxable as income was upheld. The High Court noted that the company in liquidation remains a distinct legal entity, and receipts earned by carrying on business post-winding up order are taxable under the Income-tax Act. The Tribunal's view was justified, and the question was answered in the affirmative.

3. Deduction of Interest Payable to Creditors:
The Tribunal rejected the assessee's claim for deduction of interest payable to creditors, stating that under Rule 179 of the Companies (Court) Rules, 1959, such a deduction could only arise if there was a surplus after paying all admitted claims. As this stage had not been reached, the question was deemed hypothetical and was not answered.

4. Ownership and Depreciation of Cinema Theatre Assets:
Both parts of this question were covered by the earlier decision in Golcha Properties' case [1987] 166 ITR 259 (Raj). The Tribunal's view that the assessee was not the owner of the cinema theatre and related assets, and thus not entitled to depreciation and development rebate, was upheld. The High Court found no grounds to distinguish the earlier decision for subsequent assessment years and answered the question in the affirmative and against the assessee.

5. Requirement of Show Cause Notice Before Levying Penal Interest:
The Tribunal held that no prior show cause notice is required before levying penal interest under Sections 139/215/217(1A) of the Income-tax Act, 1961. The High Court affirmed this view, stating that liability for interest is incurred automatically by operation of law, and the opportunity for reduction or waiver can be invoked by the assessee post-liability. This question was answered in the affirmative and against the assessee.

6. Obligation of the Income-tax Officer to Reduce or Waive Penal Interest:
The Tribunal's view that the Income-tax Officer is not obligated to reduce or waive penal interest without a petition from the assessee was upheld. The High Court emphasized that the assessee must invoke the authority's power for reduction or waiver by showing good cause. This question was answered in the affirmative and against the assessee.

7. Admission of Additional Evidence for Reduction or Waiver of Penal Interest:
The High Court disagreed with the Tribunal's view that the Appellate Assistant Commissioner could not consider the question of reduction or waiver of penal interest if raised for the first time in appeal. The High Court held that the appellate authority has the power to entertain such requests and decide them on merits. This question was answered in the negative and in favor of the assessee.

8. Classification of the Assessee as an Industrial Company:
The Tribunal's decision that the assessee is not an industrial company was upheld, following the earlier decision in Golcha Properties' case [1987] 166 ITR 259 (Raj). The High Court answered this question in the affirmative and against the assessee.

9. Entitlement to Relief Under Section 80G:
The Tribunal found that the assessee had not provided proof of payments for which relief under Section 80G was claimed. The High Court agreed that without proper proof, the question of relief does not arise. This question was answered against the assessee.

10. Classification of Expenditure on Refreshments as Entertainment Expenditure:
The High Court noted that the expenditure on providing tea, coffee, and snacks to customers is a permissible deduction, as held in previous decisions (Devichand Bastimal v. CIT and Metharam Lekhumal v. CIT). The Tribunal was not justified in disallowing this claim. This question was answered in favor of the assessee.

Conclusion:
1. Questions Nos. 1, 2, 4, 5, 6, and 8 were answered in favor of the Revenue and against the assessee.
2. Questions Nos. 3 and 9 did not arise and required no answer.
3. Questions Nos. 7 and 10 were answered in favor of the assessee and against the Revenue.

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