1980 (10) TMI 39 - HC - Income Tax

Summary

Issues Involved:
1. Deduction of Rs. 33,467 as business expenditure.
2. Allowability of the entire expenditure of Rs. 40,323 as business expenditure.
3. Observations of the Tribunal regarding the relationship of the expenditure with the business of the assessee.

Issue-Wise Detailed Analysis:

1. Deduction of Rs. 33,467 as Business Expenditure:
The first question addressed whether the Tribunal was correct in allowing the deduction of Rs. 33,467 to the assessee before determining if the expenditure was incurred in the course of business. The Tribunal, relying on the Supreme Court judgment in CIT v. Maharashtra Sugar Mills Ltd. [1971] 82 ITR 452, allowed the deduction, reasoning that the expenditure was incurred in the course of business, irrespective of the income generated. However, the High Court found that the Tribunal had not properly examined whether the expenditure was actually referable to the business of the weighing machine. The High Court emphasized that, as per s. 37 of the I.T. Act, the expenditure must be laid out wholly and exclusively for the purposes of the business. Since the Tribunal did not address this, the High Court answered the first question in the negative, in favor of the revenue.

2. Allowability of the Entire Expenditure of Rs. 40,323:
The second question concerned whether the Tribunal's finding that the entire expenditure of Rs. 40,323 was allowable as business expenditure was based on evidence or materials on record. The Tribunal had allowed the entire amount, asserting that the expenditure was incurred in the course of business. However, the High Court noted that the Tribunal failed to consider that the assessee had income from two distinct sources: property and the weighing machine business. The Tribunal did not apportion the expenses between these two activities, as required. The High Court cited Gujarat Ginning and Mfg. Co. Ltd. v. CIT [1977] 107 ITR 590, which necessitates the apportionment of expenses when income is derived from different heads. Consequently, the High Court found the Tribunal's decision perverse in law and answered the second question in the affirmative, favoring the revenue.

3. Observations of the Tribunal Regarding the Relationship of the Expenditure with the Business of the Assessee:
The third question examined whether the Tribunal's observation that it was not the revenue's case that the expenditure did not relate to the business of the assessee was without evidence or contrary to the material on record. The High Court found that the Tribunal wrongly assumed that the revenue did not challenge the relationship of the expenditure with the business. The revenue consistently argued that the entire expenditure did not pertain to the business activity. The High Court held that the Tribunal's assumption lacked evidence and was incorrect. Therefore, the High Court answered the third question in the affirmative, in favor of the revenue.

Conclusion:
The High Court concluded that the Tribunal had not properly addressed the core issues and had sidetracked the main controversy. The Tribunal needed to re-examine the entire question afresh, considering the apportionment of expenses and the specific requirements of s. 37 of the I.T. Act. The High Court directed the Tribunal to reconsider the matter, focusing on the permissible expenditure directly or indirectly related to the weighing machine business. The answers to the referred questions were:
1. Negative, in favor of the revenue.
2. Affirmative, in favor of the revenue.
3. Affirmative, in favor of the revenue.

There was no order as to costs of the reference.