1990 (1) TMI 327 - HC - Income Tax

Summary

Issues:
1. Determination of the nature of expenditure incurred in fulfillment of conditions for carrying on business.
2. Allowability of surtax liability as a deduction in income-tax assessment.

Analysis:

Issue 1:
The Tribunal referred questions regarding the nature of expenditure incurred in the case of amalgamation. The Tribunal upheld the disallowance of the expenditure by the Income-tax Officer, which was related to legal fees paid for amalgamation. The Tribunal reasoned that since the Indian company came into existence as a result of the amalgamation, the expenditure was of a capital nature. The Tribunal cited precedents such as Raza Buland Sugar Co. Ltd. v. CIT and Bengal and Assam Investment Ltd. v. CIT to support its decision. The Tribunal emphasized that the purpose of the expenditure was to alter the structure under which the business was carried out, making it a capital expense. The appellant argued that the amalgamation was necessary to continue the business due to legal requirements, but the Tribunal maintained that the expenditure was capital in nature based on the facts of the case.

Issue 2:
Regarding the second question on the allowability of surtax liability as a deduction in income-tax assessment, the judgment referred to the case of Molins of India Ltd. v. CIT to support the decision. The judgment concluded that the surtax liability was not an allowable deduction in the income-tax assessment, aligning with the precedent set by the Molins of India Ltd. case. The judgment was in favor of the revenue on both issues, with no order as to costs.

In conclusion, the High Court of Calcutta, through the judgments authored by S.C. Sen and B.P. Banerjee, upheld the Tribunal's decision regarding the nature of expenditure incurred for amalgamation and the non-allowability of surtax liability as a deduction in income-tax assessment for the relevant assessment year 1978-79.