1978 (4) TMI 10 - HC - Income Tax

Summary

Issues Involved:

1. Deduction of interest on capital borrowed for business purposes.
2. Deduction of municipal taxes as legitimate business expenses.
3. Deduction of renovation expenses as revenue expenditure.
4. Rebate of super-tax on dividends received.

Summary:

1. Deduction of Interest on Capital Borrowed for Business Purposes:

The assessee, Messrs. J. K. Industries (P) Ltd., purchased land and borrowed Rs. 4,50,000 from Hindusthan Commercial Bank Ltd. The assessee claimed deductions for interest paid on this loan. The ITO allowed the claim initially but the AAC disallowed it, stating the land was an investment to derive income from property, not for business purposes. The Tribunal found the borrowed capital was used to acquire a business asset for the assessee's business and managed companies, thus allowing the deduction u/s 10(2)(iii) of the Indian I.T. Act, 1922. The High Court upheld this, noting the Tribunal's unchallenged finding that the capital was used for business purposes.

2. Deduction of Municipal Taxes as Legitimate Business Expenses:

The assessee also claimed deductions for municipal taxes paid on the land. The ITO allowed this, but the AAC disallowed it for similar reasons as the interest deduction. The Tribunal allowed the deduction, considering it a legitimate business expense. The High Court agreed, noting the Tribunal's findings and the lack of challenge to these findings.

3. Deduction of Renovation Expenses as Revenue Expenditure:

For the assessment year 1961-62, the assessee claimed Rs. 4,796 for office renovation, including wooden panelling. The ITO disallowed this, considering it a capital expense. The Tribunal allowed the deduction for wooden panelling, citing it was not of an enduring nature, following the decision in Regal Theatre v. CIT [1966] 59 ITR 449. The High Court upheld this, noting the Tribunal's finding that the panelling did not result in an enduring benefit and thus was a revenue expenditure.

4. Rebate of Super-tax on Dividends Received:

For the assessment year 1964-65, the assessee received gross dividends of Rs. 1,49,110. The ITO allowed a rebate u/s 99(1) of the I.T. Act, 1961, only on the net dividend. The Tribunal held the rebate should be on the gross dividend. The High Court agreed, following CIT v. Darbhanga Marketing Co. Ltd. [1971] 80 ITR 72, and answered in favor of the assessee.

Conclusion:

The High Court answered all questions in favor of the assessee, allowing deductions for interest on borrowed capital, municipal taxes, and renovation expenses as revenue expenditure, and upheld the rebate on gross dividends. The reference was disposed of with no order as to costs.