1960 (4) TMI 93 - HC - Indian Laws

Summary

Issues Involved:
1. Legality of the Commissioner's order under Section 33-B(1) during the pendency of proceedings under Section 34.
2. Allowability of the surrendered amount of Rs. 97,000 as a revenue deduction under Section 10(2)(xv) of the Act.
3. Inclusion of the sum of Rs. 57,785 in the assessee company's total income for the assessment year ended 31st March 1950.

Detailed Analysis:

Issue 1: Legality of the Commissioner's order under Section 33-B(1)
Nothing was argued by either party regarding this issue, and it was not necessary for the court to address it.

Issue 2: Allowability of the surrendered amount of Rs. 97,000 as a revenue deduction under Section 10(2)(xv)
The court noted that the Tribunal had not set out the facts leading to its conclusion that the surrender was not a permissible deduction. The court emphasized that the key consideration was whether the sum of Rs. 97,000 was given up for reasons of commercial expediency. If so, it would be a permissible deduction under Section 10(2)(xv). The Tribunal later found that the surrender of Rs. 57,839-12-7 was indeed due to commercial expediency.

Issue 3: Inclusion of the sum of Rs. 57,785 in the assessee company's total income
The court examined whether the surrendered amount could be treated as an expenditure of the accounting year. The Revenue argued that the surrender occurred after the accounting year ended, thus it could not be treated as an expenditure for that year. The assessee contended that the real income should be considered, which includes the surrendered amount. The court agreed with the assessee, stating that the real income must be ascertained and should reflect the surrendered amount, given that the surrender was made bona fide and on grounds of commercial expediency.

The court emphasized that income-tax is annual in its structure, meaning each year is a distinct unit for computation. However, this principle does not negate the principle of real income. The court concluded that the real income of the assessee company was Rs. 20,000, and the amount of Rs. 57,839-12-7 should not be included in the real income for the accounting year.

Conclusion:
The court reframed the third question to: "Whether the sum of Rs. 57,785 could legally be included in the assessee company's total income for the assessment year ended 31st March 1950?" and answered it in the negative. Consequently, it was not necessary to answer the first two questions. The Commissioner was ordered to pay the costs, and the reference was answered accordingly.