1984 (9) TMI 5 - HC - Income Tax

Summary

Issues Involved:

1. Deduction of devaluation loss on the sale of the ship s.s. "Bharat Bhushan".
2. Deduction of brokerage paid on the sale of ships s.s. "Bharat Bhushan" and s.s. "Bharat Kesari".
3. Deduction of traveling expenses for arranging the delivery of the ship s.s. "Bharat Bhushan".

Issue-wise Detailed Analysis:

1. Deduction of Devaluation Loss on the Sale of the Ship s.s. "Bharat Bhushan":

The assessee claimed a deduction of Rs. 1,44,000 as a devaluation loss due to the devaluation of the pound sterling on November 19, 1967. The Income-tax Officer disallowed this exchange loss. The Appellate Assistant Commissioner upheld the disallowance, relying on the decision in Raja Bai Nikkam v. CIT [1967] 65 ITR 496, where it was held that the balancing charge is treated as business income but is essentially a capital receipt, thus not allowing any deduction under section 37 of the Act. The Tribunal, however, concluded that the expression "moneys payable" in section 41(2) connoted simple indebtedness without reference to the time of payment, suggesting that the legal fiction created under section 41(2) should be extended to cover revenue losses directly related to the difference between the written down value and the price realized from the sale. The High Court agreed with the Tribunal's interpretation, stating that the proper method of computing the balancing charge would be to take the rupee equivalent on the respective dates the amounts became payable, thus allowing the devaluation loss as claimed by the assessee.

2. Deduction of Brokerage Paid on the Sale of Ships s.s. "Bharat Bhushan" and s.s. "Bharat Kesari":

The assessee claimed deductions of Rs. 80,640 and Rs. 20,513 paid as brokerage for the sale of ships s.s. "Bharat Bhushan" and s.s. "Bharat Kesari", respectively. The Income-tax Officer allowed these deductions, but the Appellate Assistant Commissioner disallowed them, again relying on the decision in Raja Bai Nikkam v. CIT. The Tribunal upheld the assessee's claim, stating that the brokerage expenses were directly referable to and related to the sale of the ships. The High Court agreed with the Tribunal, affirming that the legal fiction under section 41(2) should extend to cover expenses directly referable to the realization of the sale price, thus allowing the brokerage deductions.

3. Deduction of Traveling Expenses for Arranging the Delivery of the Ship s.s. "Bharat Bhushan":

The assessee claimed a deduction of Rs. 7,759 for traveling expenses incurred for arranging the delivery of the ship s.s. "Bharat Bhushan". The Income-tax Officer allowed this deduction, but the Appellate Assistant Commissioner disallowed it. The Tribunal upheld the deduction, reasoning that these expenses were directly related to the sale of the ship. The High Court agreed with the Tribunal's approach, allowing the deduction for traveling expenses.

Conclusion:

The High Court concluded that the assessee was entitled to the deductions claimed under all three issues. Specifically, the Court held that the proper method of computing the balancing charge should take into account the rupee equivalent on the respective dates the amounts became payable, thereby allowing the devaluation loss. The brokerage and traveling expenses were also allowed as deductions, as they were directly related to the sale of the ships. Consequently, the questions were answered in favor of the assessee, and the assessee was awarded the costs of the reference.