1938 (5) TMI 14 - HC - Income Tax

Summary

Issues:
1. Allowance of a loss in the dairy account under Section 10(2)(vii)(a) of the Income Tax Act.
2. Deduction of a capital expenditure of Rs. 2,197 from the profits assessed to income tax.

Detailed Analysis:

1. The first issue pertains to the allowance of a loss in the dairy account under Section 10(2)(vii)(a) of the Income Tax Act. The assessee had claimed an allowance of Rs. 414 as a loss in the dairy account, which was disallowed by the Assistant Commissioner. The court found that the dairy business had been closed down in 1930, and the cattle were sold not because they had become permanently useless, but due to the closure of the business. As per Section 10(2)(vii)(a), an allowance can only be made for animals that have become permanently useless for the business purposes. Since the cattle were sold due to the closure of the business and not because they were permanently useless, the court held that no allowance could be granted for the Rs. 414 loss. Additionally, the court interpreted the phrase "for the purposes of the business" to be specific to the business for which the return was submitted, further denying the allowance for the loss.

2. The second issue involves the deduction of a capital expenditure of Rs. 2,197 from the profits assessed to income tax. The Assistant Commissioner had disallowed this expenditure, considering it to be of a capital nature. The court referenced a previous decision in Commissioner of Income Tax v. Tika Ram & Sons, Ltd., where it was established that the expenditure of Rs. 2,197 was indeed of a capital nature. Therefore, based on the precedent set by the Full Bench decision, the court concluded that the assessee was not entitled to deduct the Rs. 2,197 expenditure from the assessed profits for income tax purposes.

In conclusion, the court answered the reference questions by denying the allowance for the loss in the dairy account and confirming that the expenditure of Rs. 2,197 was of a capital nature, in line with the provisions of the Income Tax Act and relevant judicial precedents. The judgment was delivered by Mr. Collister and Bajpai, JJ., and the costs of the reference were to be borne by the assessee.