1945 (10) TMI 19 - HC - Income Tax

Summary

Issues Involved:
1. Allowability of payments to competitors under Section 10(2)(ix) and Section 10(2)(xii) of the Income-tax Act.
2. Allowability of subscriptions paid to schools under Section 10(2)(ix) and Section 10(2)(xii) of the Income-tax Act.
3. Exclusion of maintenance payments to the mother and stepmother of the karta from assessable income.

Detailed Analysis:

1. Payments to Competitors:
Issue: Whether payments made to Messrs. Feroze Din and Sons and Messrs. Uttar Chand Kapur and Sons were allowable deductions under Section 10(2)(ix) of the old Act and Section 10(2)(xii) of the new Act.

Judgment: The court examined whether the payments were made solely for the purpose of earning profits or laid out wholly and exclusively for the purpose of business. The payments were made to shut out competition and secure work, thus enabling the assessee to earn more profits. The Tribunal initially held these payments were not allowable as they were incurred to secure business rather than carrying it on. However, the court disagreed, stating that the payments were made to keep the press running to its full capacity and earn profits, which is a legitimate business expense. The court referenced the case of Guest, Keen and Nettlefolds v. Fowler, where similar payments were deemed allowable as they were made to keep up prices and earn larger profits. Thus, the court answered questions 1 and 3 in the affirmative, allowing the deductions.

Preliminary Point: The Commissioner argued there was no material before the Tribunal to justify the reference. The court dismissed this, stating the Tribunal had accepted the facts presented and made the reference accordingly.

Alternative Contentions: The Commissioner argued the payments were capital expenditure or made out of profits after they were earned. The court rejected these arguments, stating the payments were recurring business expenses and not for acquiring a new business.

2. Subscriptions to Schools:
Issue: Whether subscriptions paid to schools were allowable deductions under Section 10(2)(ix) of the old Act and Section 10(2)(xii) of the new Act.

Judgment: The court considered whether the subscriptions were business expenses. The Tribunal held the payments were made to secure business, not carrying it on. The court disagreed, stating the payments were part of the expenses incurred in canvassing custom for selling books, which is a legitimate business expense. The court rejected the Commissioner's argument that the payments were illegal gratification, as this was not raised earlier. Thus, the court answered questions 2 and 4 in the affirmative, allowing the deductions.

3. Maintenance Payments:
Issue: Whether maintenance payments to the mother and stepmother of the karta should be excluded from assessable income.

Judgment: The court referenced a previous decision in Hira Lal, In re, where similar payments were held to be obligatory and subject to an overriding charge, thus not taxable as income. The court applied the same reasoning, answering question 5 in the affirmative, excluding the payments from assessable income.

Conclusion:
The court ruled in favor of the assessee on all issues, allowing the deductions for payments to competitors and subscriptions to schools, and excluding maintenance payments from assessable income. No order as to costs was made.