1961 (4) TMI 5 - SC - Income Tax

Whether the assessee s claim for deducting a sum of ₹ 1,24,199 odd under the provisions of section 10(2)(xv) of the Indian Income-tax Act, 1922 be disallowed as done by Income-tax Appellate Tribunal (Calcutta Bench), Calcutta? Held that - Special leave to appeal from the decision of the Tribunal dated May 29, 1956, was not properly granted in this case and the appellant is not entitled to ask us to exercise our power under article 136 of the Constitution, when it did not move against the subsequent orders of the Board and the High Court. Appeal dismissed.

Summary

Issues:
1. Disallowance of claim for deducting a sum under section 10(2)(xv) of the Indian Income-tax Act, 1922.
2. Liability to deduct and pay tax under sections 18(3A) and 18(3B) of the Act.
3. Deductibility of the sum incurred by the appellant under section 10(2)(xv) of the Act.
4. Entitlement to special leave to appeal from the decision of the Tribunal.

Analysis:

1. The appellant, a public limited company engaged in manufacturing aluminum products, entered into an agreement with a foreign company for technical and engineering services. The appellant credited diverse sums to the foreign company's account but faced exchange control difficulties in making actual payments. The Income-tax Officer held the credited sum chargeable under the Income-tax Act, leading to a tax liability of Rs. 1,24,1993 nP. The Appellate Assistant Commissioner ruled that tax liability arises at the time of physical payment, not when credited. However, the Income-tax Appellate Tribunal upheld the Income-tax Officer's decision, leading the appellant to pay the tax to avoid recovery proceedings.

2. Following the tax payment, the appellant sought reimbursement from the foreign company, which was denied. Treating the tax payment as a business expenditure, the appellant claimed a deduction under section 10(2)(xv) of the Act. The Income-tax Officer disallowed the claim, leading to unsuccessful appeals to the Appellate Assistant Commissioner and the Income-tax Appellate Tribunal. The Tribunal rejected the appellant's application for a reference to the High Court, which was also dismissed by the High Court of Calcutta.

3. The appellant then sought special leave to appeal from the Tribunal's decision, which was granted. However, the Tribunal's subsequent rejection of the reference application and the High Court's dismissal were not challenged. The Supreme Court, considering similar circumstances in other cases, held that special leave was not properly granted and dismissed the appeal, upholding the preliminary objection. The appellant's failure to challenge the subsequent orders precluded the Court from exercising its discretion under article 136 of the Constitution.

4. In conclusion, the Supreme Court dismissed the appeal, emphasizing that special leave to appeal was not properly granted due to the appellant's failure to challenge the subsequent orders of the Tribunal and the High Court. The Court upheld the preliminary objection and ordered the appellant to bear the costs of the appeal.