1980 (4) TMI 136 - AT - Income Tax

Summary

Issues:
1. Computation of relief under s. 80J - deduction of liabilities.
2. Method of computing relief under s. 80J - average capital.
3. Deduction of advertisement expenses.
4. Disallowance of surtax liability deduction.
5. Allowance of expenses related to redeemable preference shares.

Analysis:

1. Computation of Relief under s. 80J - Deduction of Liabilities:
The main issue in the departmental appeals was the computation of relief under s. 80J, specifically regarding the deduction of liabilities. The Tribunal dismissed the departmental appeals, citing previous decisions that liabilities, including current liabilities, should not be deducted when calculating capital for s. 80J relief.

2. Method of Computing Relief under s. 80J - Average Capital:
In the cross objections, the assessee argued for using the average of capital at the beginning and end of the year for computing relief under s. 80J, rather than just the capital at the beginning of the year. The Tribunal accepted this claim, stating that the proper method involves calculating relief based on the capital on every day, or alternatively, adopting the average figure of capital at the beginning and end of the year.

3. Deduction of Advertisement Expenses:
For the assessment year 1975-76, the assessee claimed a deduction of advertisement expenses paid to six congress committees. The claim was disallowed as it was not proven to be incurred for the purpose of the business, and no further justification was provided. Consequently, the claim was properly disallowed.

4. Disallowance of Surtax Liability Deduction:
The assessee's claim for the deduction of surtax liability amounting to Rs. 3,52,049 was disallowed and the disallowance was confirmed by the Appellate Authority following a previous Tribunal decision. The Tribunal upheld the Appellate Authority's decision on this point.

5. Allowance of Expenses Related to Redeemable Preference Shares:
Regarding the expenses incurred in connection with redeemable preference shares issued by the assessee, the Tribunal considered whether these expenses should be allowed as deductions. The assessee argued that the redeemable preference shares were issued to obtain long-term capital, similar to borrowing from banks or issuing debentures. The Tribunal ultimately held that the expenses incurred were proper deductions, as they were related to financial accommodation and not a business partnership.

In conclusion, the Tribunal allowed cross objection No. 39 and partly allowed cross objection No. 40, providing detailed reasoning for each issue raised in the appeals and cross objections.