1958 (10) TMI 8 - SC - Income Tax

Whether in the circumstances of the case the sum of 17, 132 for 1943-44 and 47, 029 for 1944-45 could be legally deemed to have been received in British India and were liable to tax under section 4(1) of the Act? Whether in the circumstances of the case the expenditure of 7, 512 incurred in connection with a criminal litigation was admissible expenditure within the meaning of section 10(2)(xv) of the Act ? Held that - Having regard to the method adopted by the appellant in keeping her books of account it seems clear that if the appellant s present contention is accepted the decision as to remittances from Chistian to Khurja as well as the decision as to the rates at which the tax were to be levied on the appellant may have to be reopened. That is why we think in the special circumstances of this case we should not allow Mr. Sastri to raise the point that the appellant cannot trade with herself and so the relevant entries cannot justify the inference that the appellant has received income even though the entries are made in the accounts kept on mercantile basis - both the questions answered against the appellant. Appeals dismissed.

Issues Involved:
1. Taxability of interest amounts credited in the appellant's books of account for the assessment years 1943-44 and 1944-45.
2. Admissibility of expenditure incurred in connection with criminal litigation as deductible expenditure.

Issue-wise Detailed Analysis:

1. Taxability of Interest Amounts Credited in the Appellant's Books of Account:
The primary issue was whether the interest amounts of Rs. 17,132 for the year 1943-44 and Rs. 47,029 for the year 1944-45 could be legally deemed to have been received in British India and were liable to tax under section 4(1) of the Income Tax Act. The Income-tax Officer, Appellate Assistant Commissioner, and the Income-tax Appellate Tribunal all concluded that these amounts represented taxable income in India, which was confirmed by the High Court.

The appellant contended that the amounts credited in the books were not actually received in British India but were merely book entries. The argument focused on the interpretation of "deemed to be received" under the Act, asserting that there was no statutory provision deeming these amounts as received in British India.

The Supreme Court noted that the appellant's books of account were kept on a mercantile basis, meaning that income was recorded when it became due, not when it was actually received. The appellant's lawyer conceded that the interest was due and the liability of the Chistian shop had been extinguished to the extent of the interest paid to the head office. The Court held that the credit entries in the books of account, maintained on a mercantile basis, indicated that the amounts were treated as received by the appellant. The Court distinguished this case from others cited by the appellant, noting that the principle that a person cannot trade with themselves did not apply here.

The Court also considered the appellant's argument that no person can trade with themselves and make a profit from such dealings. However, this point was not raised at any earlier stage of the proceedings. The Court decided not to permit this argument at this late stage, emphasizing that the appellant had consistently argued that the entries did not justify the inference of receipt of income.

The Court concluded that the entries in the appellant's books of account, kept on a mercantile basis, justified the inference that the appellant had received the amounts in question as income during the relevant period. Therefore, the amounts were liable to tax under section 4(1) of the Act.

2. Admissibility of Expenditure Incurred in Connection with Criminal Litigation:
The second issue was whether the expenditure of Rs. 7,512 incurred in connection with criminal litigation was admissible as deductible expenditure under section 10(2)(xv) of the Act. The Income-tax Officer, Appellate Assistant Commissioner, and the Tribunal all disallowed this expenditure, and the High Court upheld their decision.

The appellant's counsel did not challenge the High Court's decision on this point before the Supreme Court. It was conceded that the finding against the appellant on this point was a finding of fact and could not be effectively challenged based on the material on record.

Conclusion:
The Supreme Court upheld the decisions of the lower authorities and the High Court on both issues. The interest amounts credited in the appellant's books of account for the assessment years 1943-44 and 1944-45 were deemed to be received in British India and were liable to tax under section 4(1) of the Act. The expenditure of Rs. 7,512 incurred in connection with criminal litigation was not admissible as deductible expenditure under section 10(2)(xv) of the Act. The appeals were dismissed with costs.

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