1972 (5) TMI 25 - HC - Income Tax

Assessee Carrying On Business, Business Expenditure, Business Loss, Carry Forward And Set Off, Expenditure On Litigation, In Part, Income From Business, Let Out, Sugar Mills

Issues Involved:
1. Litigation expenses of Rs. 20,664 as a permissible deduction.
2. Interest amount of Rs. 4,413 as a permissible deduction.
3. Travelling and conveyance expense of Rs. 63 as a permissible deduction.
4. Amounts of Rs. 16,000 and Rs. 42,957 received by the assessee as income.
5. Carried forward loss of Rs. 78,084 set off against the share of rent received.
6. Interest amount of Rs. 1,52,764 as a permissible deduction.
7. Acquisition of 1/6th share in the factory by Seth Banarsi Das under the deed of exchange dated July 16, 1948.
8. Determining the written down value of the 1/6th interest acquired for depreciation purposes.

Detailed Analysis:

1. Litigation Expenses of Rs. 20,664:
The court examined whether the litigation expenses of Rs. 20,664 were a permissible deduction under Section 10(2)(xv) of the Indian Income-tax Act, 1922. The court held that the litigation expenses were incurred wholly and exclusively for the purpose of the business and were not of a capital or personal nature. The litigation related to a business loss, which the assessee was trying to avoid. The court concluded that the loss was a revenue loss and remained so even after being paid off and allowed by the income-tax department as a deduction. Hence, the litigation expenses were considered a permissible deduction.

2. Interest Amount of Rs. 4,413:
The court addressed whether the interest amount of Rs. 4,413 paid on loans taken to pay off a part of the loss was a permissible deduction. The court held that the interest paid was for capital borrowed for the purpose of the business, as the loss was a trading debt. Even if Section 10(2)(iii) was not strictly applicable, the amount was allowable under the residuary head contained in Section 10(2)(xv). The court concluded that the interest amount was a permissible deduction.

3. Travelling and Conveyance Expense of Rs. 63:
The court considered whether the travelling and conveyance expense of Rs. 63 incurred in connection with the litigation was a permissible deduction. The court held that since the payment of the loss was a revenue expenditure, the travelling expenses would also be considered revenue expenses. Therefore, the travelling and conveyance expense was deemed a permissible deduction.

4. Amounts of Rs. 16,000 and Rs. 42,957 Received by the Assessee:
The court examined whether the amounts of Rs. 16,000 and Rs. 42,957 received by the assessee constituted income. The court referred to a previous decision where a similar amount received by the assessee was held to be income liable to tax. Following that decision, the court held that both amounts were the assessee's income.

5. Carried Forward Loss of Rs. 78,084:
The court analyzed whether the carried forward loss of Rs. 78,084 could be set off against the share of rent received from the receiver. The court concluded that the income from letting out the sugar mills was not business income, as the business had stopped since 1944 and the mills were in the custody of a receiver. Therefore, the carried forward loss could not be set off against the share of rent received.

6. Interest Amount of Rs. 1,52,764:
The court addressed whether the interest amount of Rs. 1,52,764 paid on loans taken to purchase shares of Jaswant Sugar Mills was a permissible deduction. The court referred to a previous decision where a similar claim was allowed. Following that decision, the court held that the interest amount was an allowable deduction.

7. Acquisition of 1/6th Share in the Factory:
The court examined whether Seth Banarsi Das acquired a 1/6th share in the factory under the deed of exchange dated July 16, 1948. The court referred to a previous decision where a similar claim was disallowed. Following that decision, the court held that the acquisition of the 1/6th share was valid.

8. Written Down Value for Depreciation:
The court considered whether the written down value of the 1/6th interest acquired by Banarsi Das in the factory should be determined at Rs. 4,50,000 for the purpose of allowance of depreciation. The court referred to a previous decision where a similar claim was disallowed. Following that decision, the court held that the assessee was not entitled to the claimed depreciation.

Conclusion:
The court answered the questions as follows:
1. Affirmative, in favor of the assessee.
2. Affirmative, in favor of the assessee.
3. Affirmative, in favor of the assessee.
4. Affirmative, the amounts were income.
5. Negative, the loss could not be set off.
6. Affirmative, in favor of the assessee.
7. Affirmative, the acquisition was valid.
8. Negative, the claimed depreciation was not allowed.

No order as to costs was made.

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