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Issues Involved:
1. Deductibility of contribution to the election fund of the Indian National Congress. 2. Inclusion of sale proceeds from the ship S.S. Jalakirti in business profits. 3. Inclusion of amounts realized from the sale of an accounting machine and ship S.S. Jalakanra in business profits. 4. Inclusion of amounts credited to reserve accounts from the cancellation of debentures in business profits. 5. Treatment of a refund amount as part of accumulated profits for ascertaining dividends. Issue-wise Detailed Analysis: 1. Deductibility of Contribution to Election Fund: The first issue concerns whether the contribution of Rs. 3,25,000 to the Indian National Congress election fund is an admissible deduction under section 10 of the Indian Income-tax Act, 1922, for the assessment year 1958-59. The ITO disallowed the deduction, a decision confirmed by the AAC and the Tribunal. The Tribunal observed that the expenditure must have a direct connection with the trade, which was not established in this case. The court upheld this view, citing CIT v. Elphinstone Spinning and Weaving Mills Co. Ltd., stating that political contributions are not deductible as they lack a direct nexus with earning profits. 2. Inclusion of Sale Proceeds from S.S. Jalakirti: The second issue pertains to whether Rs. 20,03,448 from the sale of S.S. Jalakirti should be included in business profits under section 10(2)(vii) or section 10(2A) for the assessment year 1958-59. The ITO included the amount, but the AAC and Tribunal disagreed. The court, referencing Bharat Line Ltd. v. CIT, concluded that the ship was not used for business purposes after 1st July 1956, and thus, the amount should not be included under section 10(2)(vii). The court also agreed with the Tribunal that the amount was not chargeable under section 10(2A). 3. Inclusion of Amounts from Sale of Accounting Machine and S.S. Jalakanra: The third issue involves whether Rs. 14,196 from the sale of an accounting machine and Rs. 21,39,566 from the sale of S.S. Jalakanra should be included in business profits under section 10(2)(vii) for the assessment years 1958-59 and 1959-60, respectively. The AAC supported the assessee's view that these amounts should not be included, but the Tribunal disagreed. The court upheld the Tribunal's view, interpreting the second proviso to section 12B(1) as applying only to the subsidiary company and not to the parent company. 4. Inclusion of Amounts from Debenture Cancellation: The fourth issue is whether Rs. 44,048 and Rs. 46,511 credited to the company's reserve accounts from debenture cancellation should be included in business profits for the assessment years 1958-59 and 1959-60. The ITO and AAC included these amounts, considering them business profits due to the frequency and nature of transactions. However, the Tribunal viewed these as capital transactions aimed at reducing capital commitments. The court agreed with the Tribunal, stating that the surpluses were not business profits but capital benefits. 5. Treatment of Refund Amount as Accumulated Profits: The fifth issue involves whether Rs. 50,937 should be treated as part of the accumulated profits of the Burma company for ascertaining dividends under section 2(6A)(c) for the assessment year 1959-60. The ITO and AAC included the amount, but the Tribunal disagreed, stating that accumulated profits must be in the company's possession before liquidation. The court, however, held that the refund became due immediately upon the Tribunal's order and should be included as accumulated profits. Conclusion: - Question 1: Negative, against the assessee. - Question 2: Negative, both as regards the second proviso to section 10(2)(vii) and section 10(2A), in favor of the assessee. - Question 3: Affirmative, against the assessee. - Question 4: Negative, in favor of the assessee. - Question 5: Affirmative, against the assessee. Both parties will bear their own costs.
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