1982 (2) TMI 101 - AT - Income Tax

Issues Involved:
1. Taxability of Rs. 1,15,422 received from Gujarat Industrial Development Corporation (GIDC) as short-term capital gain.
2. Deduction of surtax liability in total income determination.
3. Applicability of sections 40(c) and 40A(5) of the Income-tax Act for employee directors' remuneration.
4. Allowability of fees paid to the Registrar of Companies for increasing authorized share capital.

Detailed Analysis:

Issue 1: Taxability of Rs. 1,15,422 received from GIDC as short-term capital gain

The primary issue revolves around whether the amount of Rs. 1,15,422 received by the assessee from GIDC should be taxed as a short-term capital gain. The facts indicate that the assessee applied for industrial plots from GIDC, paid an initial amount, and agreed to pay the balance in installments. Due to non-compliance with the terms of the agreement, the assessee requested GIDC to take back the plot. GIDC refunded Rs. 1,22,646 after deducting penalties and service charges, including an amount of Rs. 1,15,422 as 50% of the enhanced value of the land.

The Income Tax Officer (ITO) treated this amount as taxable, a decision upheld by the Commissioner (Appeals), who cited the Bombay High Court ruling in CIT v. Tata Services Ltd. The Tribunal also agreed, noting that the assessee acquired valuable rights through the license agreement, which constituted a capital asset. The assessee's argument that no capital asset existed and no cost was incurred was rejected, as the initial payment and obligations under the agreement were considered sufficient consideration. The Tribunal concluded that the relinquishment of rights by the assessee was a transfer under section 2(47) of the Income-tax Act, making the gain taxable.

Issue 2: Deduction of surtax liability in total income determination

The assessee sought a deduction for surtax liability while determining total income, which the Commissioner (Appeals) denied, following the Tribunal's Special Bench decision in Amar Dye-Chem. Ltd. v. ITO. The Tribunal upheld this decision, agreeing with the Special Bench's reasoning that surtax liability is not deductible.

Issue 3: Applicability of sections 40(c) and 40A(5) of the Income-tax Act for employee directors' remuneration

The revenue appealed against the Commissioner (Appeals)' decision that sections 40(c) and not 40A(5) applied to employee directors' remuneration. The Commissioner (Appeals) relied on the Tribunal's Special Bench decision in Geoffrey Manners & Co. Ltd. v. ITO. The Tribunal upheld this view, agreeing with the Special Bench's interpretation that section 40(c) was applicable.

Issue 4: Allowability of fees paid to the Registrar of Companies for increasing authorized share capital

The revenue contested the Commissioner (Appeals)' decision to allow the deduction of Rs. 3,810 paid to the Registrar of Companies for increasing authorized share capital. The Commissioner (Appeals) had relied on the Bombay High Court decision in CIT v. Elphinstone Spg. & Wvg. Mills Co. Ltd. The Tribunal found this case distinguishable, as the expenditure in Elphinstone was for compliance with changes in company law, not for increasing share capital. The Tribunal followed the Allahabad High Court decision in Upper Doab Sugar Mills Ltd. v. CIT and the Himachal Pradesh High Court decision in Mohan Meakin Breweries Ltd. v. CIT, which treated such expenditure as capital in nature. Consequently, the Tribunal allowed the revenue's appeal on this ground.

Conclusion:

The assessee's appeal was dismissed, and the revenue's appeal was partly allowed. The Tribunal upheld the taxability of Rs. 1,15,422 as short-term capital gain, denied the deduction of surtax liability, confirmed the applicability of section 40(c) for employee directors' remuneration, and treated the fees paid for increasing authorized share capital as a capital expenditure.

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