1980 (2) TMI 14 - HC - Income Tax

Summary

Issues Involved:
1. Entitlement to full benefit of extra shift allowance.
2. Claim of share of loss from the unregistered firm to be set off against other business income.
3. Disallowance of Rs. 10,000 out of establishment and management expenses.
4. Disallowance of Rs. 19,715 out of legal expenses.

Summary:

1. Entitlement to Full Benefit of Extra Shift Allowance:
The assessee, engaged in the manufacture of sugar, claimed full extra shift allowance for its seasonal factory. The ITO, AAC, and Appellate Tribunal rejected this claim, calculating the allowance proportionately based on the actual number of days the machinery worked extra shifts compared to 300 days. This decision was upheld by referencing similar cases, including Raza Sugar Co. v. CIT [1970] 76 ITR 541 and Kundan Sugar Mills v. CIT [1977] 106 ITR 704. The court answered the first question in the negative, against the assessee, aligning with the consistent judicial view that extra shift allowance should be proportionate to the actual days worked.

2. Claim of Share of Loss from Unregistered Firm:
The assessee sought to set off its share of loss from an unregistered firm, M/s. Agricultural Co., against its other income. This claim was rejected by the ITO, AAC, and Appellate Tribunal, referencing earlier decisions and the Supreme Court's ruling in CIT v. Jadavji Narsidas & Co. [1963] 48 ITR 41 (SC). Despite the assessee's counsel citing CIT v. Ram Swarup Gupta [1973] 92 ITR 495, the court noted conflicting judicial opinions but ultimately followed the precedent set by the Full Bench of the Allahabad High Court in Raza Buland Sugar Co. Ltd. v. CIT [1976] 102 ITR 451 (All) [FB], which had been upheld by the Supreme Court. Thus, the second question was answered in the negative, against the assessee.

3. Disallowance of Rs. 10,000 Out of Establishment and Management Expenses:
The ITO disallowed Rs. 10,000, attributing it to the services rendered by the assessee's staff to the Agricultural Co., an unregistered firm. This disallowance was upheld by the AAC and Appellate Tribunal, which reasoned that expenses incurred for another entity's business are not deductible. The court agreed, noting that the expenses were not solely for the assessee's business and referenced a similar decision in ITR Nos. 9 and 31 of 1969 (Raza Sugar Co. Ltd. v. CIT [1981] 130 ITR 421). The third question was answered in the affirmative, against the assessee.

4. Disallowance of Rs. 19,715 Out of Legal Expenses:
The legal expenses were incurred defending proceedings initiated by shareholders regarding the distribution of dividends in specie. The ITO, AAC, and Appellate Tribunal disallowed these expenses, determining they were not connected to the business's day-to-day operations. The court upheld this view, distinguishing the case from All India Reporter Ltd. v. CIT [1963] 49 ITR 196 (Bom), and concluded that the expenses were related to the distribution of profits, not the business operations. The fourth question was answered in the affirmative, against the assessee.

Conclusion:
1. Negative, against the assessee.
2. Negative, against the assessee.
3. Affirmative, against the assessee.
4. Affirmative, against the assessee.

No order as to costs.