1977 (11) TMI 12 - HC - Income Tax

Summary

Issues Involved:
1. Treatment of loss in speculative transactions.
2. Certain disallowances out of expenses.
3. Taxability of the sale proceeds of loom hours.

Summary:

1. Treatment of Loss in Speculative Transactions:
The original assessment u/s 23(3) of the Indian I.T. Act, 1922, included a sum of Rs. 5,22,450 representing the price of loom hours. The assessee appealed to the AAC regarding the treatment of loss in speculative transactions. The AAC found the transactions genuine but set aside the assessment, directing the ITO to reassess after examining the contract papers and vouchers. The ITO, however, confined his reassessment to the speculative losses as per the AAC's specific direction and did not consider the taxability of the loom hours' sale proceeds.

2. Certain Disallowances Out of Expenses:
The assessee also appealed against certain disallowances out of expenses, but this contention was not pressed before the AAC, who rejected it as unmeritorious.

3. Taxability of the Sale Proceeds of Loom Hours:
After the Supreme Court's decision in CIT v. Maheshwari Devi Jute Mills Ltd. [1965] 57 ITR 36, which held that proceeds from the sale of loom hours were of a capital nature and not assessable as income, the assessee filed a revised return claiming the sum of Rs. 5,22,450 was not taxable. The ITO rejected this claim, stating that the AAC's remand order confined the reassessment to speculative losses only. The AAC, upon appeal, held that the sum was a capital receipt and not taxable. However, the Tribunal ruled that the ITO had no jurisdiction to consider the loom hours' sale proceeds in the reassessment, as it was not part of the original appeal before the AAC.

Legal Reasoning:
The Tribunal's decision was based on the interpretation of s. 31(3)(b) of the Act and the specific directions in the AAC's remand order. The Tribunal held that the ITO's jurisdiction was limited to the points raised in the original appeal, and the assessee could not introduce new claims in the reassessment proceedings. The High Court agreed with this interpretation, noting that the AAC's order did not set aside the entire assessment but only the part concerning speculative losses. The ITO was bound by the AAC's directions and could not reassess other aspects of the original assessment.

Conclusion:
The High Court answered the referred question in the affirmative, holding that the Tribunal was right in its interpretation. The AAC was precluded from entertaining a plea based on the latest Supreme Court decision in the subsequent appeal, as the remand order was limited to specific issues. There was no order as to costs.