1982 (3) TMI 19 - HC - Income Tax

Appeal To Tribunal, Donations To Political Party, Loss Incurred In Export, Show-cause Notice, Tax Concession, Widely Held Company

Issues Involved:
1. Tax concession and higher rebate on super-tax.
2. Entitlement to a lower rate of tax under specific Finance Acts.
3. Disallowance of expenditure on repairs to buildings.
4. Disallowance of pension paid to widows of ex-directors.
5. Disallowance of provision for sales tax liability.
6. Disallowance of donation to a political party.
7. Allowance of additional ground regarding payment to the central office.
8. Allowance of donations to schools as business expenditure.

Detailed Analysis:

1. Tax Concession and Higher Rebate on Super-tax:
The court first addressed whether the profits from the sale of import entitlements could be considered as profits derived from the export of goods under the Finance Acts of 1965, 1966, and 1967. The Tribunal had held that the export operations and the sale of import entitlements constituted the same business. The court agreed, stating that both the sale price of carpets and the import entitlements were directly due to the export of carpets. The court concluded that profits arising from the sale of import entitlements were indeed derived from the export of goods and thus entitled to tax concessions under the relevant Finance Acts.

2. Entitlement to a Lower Rate of Tax Under Specific Finance Acts:
The court examined whether the assessee was entitled to a lower rate of tax permissible under various Finance Acts, provided the company made the prescribed arrangements for the declaration and payment of dividends within India and was a company referred to in Section 108 of the Income Tax Act. The court found that the assessee, being a 100% subsidiary of a foreign company, did not meet the criteria of being a company in which the public are substantially interested as defined under Section 2(18) of the Income Tax Act. Consequently, the assessee was not entitled to the tax rebates under the relevant provisions of the Finance Acts.

3. Disallowance of Expenditure on Repairs to Buildings:
The court reviewed the disallowance of expenditure related to repairs following a major fire. The Tribunal had classified the expenditure as capital in nature. However, the court held that the expenditure incurred in replacing the fire-damaged roof with asbestos sheets was revenue in nature. The court reasoned that the expenditure was necessary for the business to continue and was dictated by commercial expediency. Therefore, the expenditure was allowable as business expenditure under Section 37 of the Income Tax Act.

4. Disallowance of Pension Paid to Widows of Ex-directors:
The court examined the disallowance of pension payments to the widows of ex-directors. The Tribunal had found that the payments were made on humanitarian grounds rather than business expediency. The court upheld this view, stating that the payments were not made to facilitate the carrying on of the business and thus did not qualify as business expenditure under Section 37 of the Income Tax Act.

5. Disallowance of Provision for Sales Tax Liability:
The court considered the disallowance of a provision for sales tax liability. The Tribunal had held that the provision was for a contingent liability. The court disagreed, citing that the liability to pay sales tax arose as soon as sales were effected, irrespective of the dispute. The court concluded that the provision for sales tax liability was not contingent and was allowable as a business expense under Section 37 of the Income Tax Act.

6. Disallowance of Donation to a Political Party:
The court reviewed the disallowance of a donation made to the Congress Party. The Tribunal had found that the donation was not made in the assessee's character as a trader. The court agreed, stating that the donation could not be said to have been made wholly and exclusively for business purposes. Therefore, the amount was rightly disallowed.

7. Allowance of Additional Ground Regarding Payment to the Central Office:
The court examined whether the Tribunal was correct in allowing the assessee to raise an additional ground regarding a payment to the central office. The Tribunal had permitted the additional ground, and the court found no error in this decision. The court noted that all relevant materials were present on record and the claim was clearly allowable.

8. Allowance of Donations to Schools as Business Expenditure:
The court considered whether donations to two schools set up by the assessee for the benefit of its laborers and their children were allowable as business expenditure. The Tribunal had allowed the donations, and the court agreed, stating that the donations were made to facilitate the smooth running of the business and were motivated by commercial expediency. Therefore, the donations were rightly held to be allowable expenses.

Conclusion:
- Tax Concession and Higher Rebate on Super-tax: Affirmed in favor of the assessee.
- Lower Rate of Tax Under Specific Finance Acts: Denied in favor of the Department.
- Expenditure on Repairs to Buildings: Allowed as revenue expenditure.
- Pension to Widows of Ex-directors: Denied as business expenditure.
- Provision for Sales Tax Liability: Allowed as business expenditure.
- Donation to a Political Party: Denied as business expenditure.
- Additional Ground Regarding Payment to the Central Office: Allowed.
- Donations to Schools: Allowed as business expenditure.

The court provided detailed answers to the specific questions referred, aligning with the above conclusions.

← Previous Next →