1983 (4) TMI 14 - HC - Income Tax

Accounting, Income, Intercorporate Dividends, Limitation Contained In S. 88(3), Special Deduction

Summary

Issues Involved:
1. Deduction of expenditure on repairs, municipal tax, and ground rent.
2. Inclusion of interest income for assessment.
3. Restriction on rebate for donations under Sections 85A and 88 of the Income-tax Act, 1961.

Issue-wise Detailed Analysis:

1. Deduction of Expenditure on Repairs, Municipal Tax, and Ground Rent:
The assessee claimed deductions for Rs. 8,208 on repairs, Rs. 20,436 on municipal tax, and Rs. 5,447 on ground rent. The Income Tax Officer (ITO) disallowed these claims, following a precedent from the previous assessment year 1965-66. The Appellate Assistant Commissioner (AAC) upheld the ITO's decision, stating that these expenses related to house property let out and were therefore not deductible under the head "Business." The Tribunal also upheld this disallowance, following its earlier decision in the assessee's case for the previous year. The court, referencing the decision in CIT v. Express Newspapers Ltd. [1980] 124 ITR 117 (Mad), affirmed the Tribunal's view and answered the question in the affirmative, ruling against the assessee.

2. Inclusion of Interest Income for Assessment:
The ITO included Rs. 19,744 as income, being the interest debited to the account of one N. K. Jhajaria, on the basis that it accrued according to the method of accounting. The AAC upheld this inclusion, and the Tribunal followed its earlier decision in the assessee's case, affirming the inclusion. The court, referencing the same decision in CIT v. Express Newspapers Ltd. [1980] 124 ITR 117 (Mad), upheld the Tribunal's view and answered the question in the affirmative, ruling against the assessee.

3. Restriction on Rebate for Donations under Sections 85A and 88:
The ITO restricted the rebate on donations to 10% of the total income, excluding dividend income exempt under Section 85A. The AAC upheld this restriction. The assessee argued that Section 85A falls under Chapter VII and should not affect the rebate calculation under Section 88 in Chapter VIII. The Tribunal, however, supported the AAC's view, stating that the restriction under Section 88(3) applies regardless of the chapter under which the income is exempt.

The court analyzed the language of Section 88(3), which restricts deductions to 7.5% of the total income as reduced by any portion on which income-tax is not payable and by any amount for which a deduction has been granted under any other provision of Chapter VIII. The court noted that Section 85A provides for deduction of tax on inter-corporate dividends and falls under Chapter VII, not Chapter VIII. Therefore, the court held that the restriction in Section 88(3) does not apply to deductions under Section 85A. The court disagreed with the Tribunal's view and ruled that the limitation in Section 88(3) does not apply to deductions allowed under Section 85A, answering the question in the negative and in favor of the assessee. The assessee was awarded costs of Rs. 500 from the Revenue.