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Issues involved:
The judgment pertains to the assessment years 1969-70 and 1970-71, where the Tribunal referred a question of law regarding the allowance of expenses for a public limited company that had discontinued its business of manufacturing and selling wooden bobbins. Assessment Year 1969-70: The assessee company had filed returns showing income from interest and rent, while claiming expenses of Rs. 11,295. The Income Tax Officer (ITO) disallowed the expenses and added certain items to the income, resulting in a net assessed income. The Appellate Assistant Commissioner (AAC) allowed a partial deduction towards expenses, but the Tribunal held that the company was not carrying on any business in that year. However, the Tribunal allowed the claimed expenses, stating that certain expenses were necessary for the company to exist and earn income from other sources, as per Section 57 of the Income Tax Act. Assessment Year 1970-71: Similar to the previous year, the ITO disallowed expenses and added items to the income, resulting in a net assessed income. The AAC allowed a partial deduction, but the Tribunal confirmed that the company was not carrying on any business. The Tribunal held that the expenses claimed by the assessee were essential for the company to maintain its status and effectively dispose of its assets from the previous business. The Tribunal found that the expenses were wholly and exclusively for the purpose of making or earning income from other sources, as per Section 57 of the Income Tax Act. Legal Interpretation: The Tribunal's decision was based on the interpretation of Section 57 of the Income Tax Act, which allows deductions for expenses laid out or expended wholly and exclusively for the purpose of making or earning income from other sources. The Tribunal found that the claimed expenses were directly related to maintaining the company's existence and facilitating the profitable disposal of its assets, excluding expenses related to income from property. The judgment cited precedents to support the nexus between the character of the expenditure and the making or earning of income, ultimately ruling in favor of the assessee. Conclusion: The High Court answered the question in favor of the assessee, affirming the Tribunal's decision to allow the claimed expenses for both assessment years. The assessee was granted costs, and the judgment highlighted the importance of expenses necessary for a company to exist and earn income from other sources, as per the provisions of the Income Tax Act.
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