1984 (2) TMI 177 - AT - Income Tax

Accounting Year, Assessee s Appeal, Assessment Year, Capital Loss, Carry Forward And Set Off, Interest On Deposit, Previous Year

Summary

Issues Involved:
1. Disallowance of interest under Section 40A(8) of the Income-tax Act, 1961.
2. Disallowance of short-term capital loss due to the acquisition of land by the Maharashtra Government.

Issue-wise Detailed Analysis:

1. Disallowance of Interest under Section 40A(8):

The assessee company, substantially interested by the public, contested the disallowance of interest under Section 40A(8) of the Income-tax Act, 1961, for the assessment years 1977-78 and 1978-79. The interest charged to the profit and loss account included interest on deposits, which the Income Tax Officer (ITO) disallowed at 15%, amounting to Rs. 3,04,904 and Rs. 3,01,665 respectively. The assessee argued that a hypothecation deed executed on 9-12-1980, with retrospective effect from 1-7-1974, secured the deposits, thus exempting them from disallowance under Section 40A(8). However, both the ITO and the Commissioner (Appeals) rejected this argument, noting that the hypothecation deed was executed after the relevant accounting years, and the deposits were unsecured during the period in question. The Tribunal upheld this view, stating that the retrospective creation of a charge unilaterally is legally ineffective, and the deposits should be considered unsecured, justifying the disallowance of interest under Section 40A(8).

2. Disallowance of Short-term Capital Loss:

The assessee claimed a short-term capital loss of Rs. 5,17,468 due to the acquisition of 624.14 acres of land by the Maharashtra Government under the Maharashtra Private Forests (Acquisition) Act, 1975. The land was purchased on 10-11-1972, and the acquisition notification was issued on 29-8-1975. The ITO disallowed the claim for the assessment year 1978-79, stating that the notification date fell outside the relevant accounting period. The Commissioner (Appeals) also rejected the claim for both 1977-78 and 1978-79, citing the Supreme Court decision in Addl. CIT v. Gurjargravures (P.) Ltd., which prohibits late claims without prior grounds or material evidence.

Upon second appeal, the Tribunal analyzed the provisions of the Maharashtra Private Forests (Acquisition) Act, 1975, and concluded that the land vested with the State Government on 29-8-1975, extinguishing the assessee's ownership. The Tribunal disagreed with the Commissioner (Appeals), finding that sufficient material was on record (balance sheet and profit and loss account) to substantiate the claim. Consequently, the Tribunal ruled that the short-term capital loss should be allowed for the assessment year 1977-78, and remanded the case to the ITO to verify the classification of roads laid on the land (whether they form part of the plant or buildings) and determine the terminal allowance.

Conclusion:

The appeals were partly allowed, affirming the disallowance of interest under Section 40A(8) and permitting the claim of short-term capital loss for the assessment year 1977-78, subject to further verification by the ITO.