1982 (5) TMI 11 - HC - Income Tax

Summary

Issues:
1. Interpretation of Section 256(2) of the Income Tax Act, 1961 regarding the power to make a reference or direct the making of a reference.
2. Allowability of pre-incorporation expenses incurred before the accounting period relevant to the assessment year.
3. Determination of whether expenses incurred before the start of the business in July 1972 can be considered as relating to the subsequent accounting period.

Analysis:
1. The judgment dealt with the interpretation of Section 256(2) of the Income Tax Act, 1961, concerning the power to make a reference or direct the making of a reference. The court emphasized that a question of law can be referred when it "arises" out of the order of the Tribunal. The court referred to the Supreme Court's judgment in CIT v. Scindia Steam Navigation Co. Ltd., outlining four propositions regarding questions arising from the Tribunal's order. The court concluded that in the present case, the question of law did arise out of the Tribunal's order as it formed the basis of decisions by the ITO and the AAC, even though the Tribunal did not explicitly address it.

2. The issue of the allowability of pre-incorporation expenses incurred before the relevant accounting period was also discussed in the judgment. The company in question was incorporated on 22nd April 1972, and the first accounting period ended on 30th June 1973. The ITO disallowed expenses incurred before 1st July 1972, totaling Rs. 18,823, as not relevant to the assessment year 1974-75. The AAC upheld this decision, stating that pre-incorporation expenses could not be included in the assessment. However, the Tribunal disagreed, holding that the expenses were related to the business and not purely pre-incorporation expenses.

3. Another aspect considered in the judgment was whether expenses incurred before the business commenced in July 1972 could be considered as relating to the subsequent accounting period. The court noted that the expenses incurred before the start of the business might actually relate to the period from 1st July 1972 to 30th June 1973. The Tribunal's failure to address this crucial aspect led the court to direct the Tribunal to refer the question to the High Court for decision.

In conclusion, the judgment addressed the interpretation of the Income Tax Act, the allowability of pre-incorporation expenses, and the relevance of expenses incurred before the start of the business to the subsequent accounting period. The court emphasized the importance of addressing key legal questions arising from the Tribunal's order and directed further consideration of the issues at hand.