1979 (2) TMI 75 - HC - Income Tax

Advance Tax, Appeal To AAC, Expenditure Incurred, In The Nature, Income Tax, Loss On Sale, Penal Interest, Reduction Or Waiver, Revenue Loss, Waiver Of Interest

Summary

Issues Involved:
1. Revenue Loss on Sale of Government Securities
2. Deduction of Sundry Trade Expenses
3. Deduction of Expenditure on Income-Tax Appeals
4. Direction to Income-Tax Officer Regarding Levy of Interest
5. Entitlement to Development Rebate on Refrigerator

Detailed Analysis:

Issue 1: Revenue Loss on Sale of Government Securities
Question: Whether the loss suffered by the assessee on the sale of certain Government securities was allowable as a revenue loss for the assessment years 1960-61 and 1962-63?

Analysis:
The assessee, a limited company engaged in building contracts, claimed losses on the sale of Government securities as revenue losses for the assessment years 1960-61 and 1962-63. The Income Tax Officer (ITO) and the Appellate Assistant Commissioner (AAC) classified these losses as capital losses. However, the Income Tax Appellate Tribunal accepted the assessee's contention that the losses were incidental to its business. The Tribunal noted that the securities were not investments but were acquired to earn interest while making deposits for government contracts. The Tribunal's practical and businesslike approach was deemed legally valid. The court concluded that the losses should be allowed as deductions in computing business profits, answering the question in the affirmative and in favor of the assessee.

Issue 2: Deduction of Sundry Trade Expenses
Question: Whether the Company was entitled to deduct sums claimed under 'Sundry trade expenses' for the assessment years 1960-61, 1961-62, and 1962-63?

Analysis:
The assessee chose not to press this question. Therefore, the court refrained from answering it.

Issue 3: Deduction of Expenditure on Income-Tax Appeals
Question: Whether the amounts incurred by the assessee in prosecuting its income-tax appeals were allowable as deductions in determining its business profits for the assessment years 1961-62 and 1962-63?

Analysis:
The expenses incurred by the assessee in prosecuting income-tax appeals, including appeal fees, traveling expenses, and professional fees, were deemed allowable as deductions. The court referenced the Full Bench decision in R. B. Bansilal Abirchand Spinning and Weaving Mills v. CIT and the Supreme Court decision in CIT v. Birla Cotton Spinning and Weaving Mills Ltd., which held that such expenses were incurred for the preservation and protection of the assessee's business and were justified by principles of commercial expediency. The question was answered in the affirmative and in favor of the assessee.

Issue 4: Direction to Income-Tax Officer Regarding Levy of Interest
Question: Whether the Tribunal could direct the Income-tax Officer to examine the claim of the assessee relating to the levy of interest under s. 18A(6) and reduce the interest charged to the extent that it covered the period of the pendency of the assessment for which the assessee could not be held responsible?

Analysis:
The court examined whether an appeal was competent regarding the computation of penal interest. The Tribunal had directed the ITO to examine the claim and reduce the interest if the delay was not attributable to the assessee. The court referenced the Full Bench decision in CIT v. Daimler Benz A.G., which clarified that an appeal could not be filed merely against the quantum of penal interest. The court held that the Tribunal was in error in directing the ITO to consider the delay. The question was answered in the negative and in favor of the revenue.

Issue 5: Entitlement to Development Rebate on Refrigerator
Question: Whether the assessee-company was entitled to the development rebate on the refrigerator while determining its profits for the year 1962-63?

Analysis:
The assessee requested the question to be answered in the negative and in favor of the revenue. The court accordingly answered it in the negative.

Conclusion:
- Q. No. 1: Affirmative and in favor of the assessee.
- Q. No. 2: Not pressed by the assessee and not answered.
- Q. No. 3: Affirmative and in favor of the assessee.
- Q. No. 4: Negative and in favor of the revenue.
- Q. No. 5: Negative and against the assessee.

The parties were directed to bear their own costs of the reference.