1965 (7) TMI 3 - HC - Income Tax

Whether the Tribunal was right in law in holding that an equitable apportionment of the expenses could be made by virtue of the provisions of Explanation 1 to section 24(1) - held that that the Income-tax Officer could have apportioned under section 10 of the Act the expenses between the money-lending and speculation business.

Summary

Issues:
Interpretation of section 24(1) of the Income-tax Act for equitable apportionment of expenses between different businesses carried out by an assessee.

Analysis:
The case involved a dispute regarding the apportionment of expenses between two separate businesses conducted by the assessee, one in money-lending and the other in speculation. The Income-tax Officer initially allowed the speculation loss to be set off against the income from the money-lending business, resulting in under-assessment. Subsequently, in reassessment proceedings, the speculation business was treated separately, and the expenses were apportioned between the two businesses. The Appellate Assistant Commissioner deleted an estimated expense amount added by the Income-tax Officer, citing section 10(2)(xv) did not permit separate expenses for different businesses.

However, the Income-tax Appellate Tribunal reversed the decision, emphasizing the explanation to section 24(1) of the Act, considering speculation business as distinct from money-lending. The Tribunal held that if expenses were not apportioned by the assessee, the Income-tax Officer could make an equitable apportionment. The assessee challenged this decision, arguing against the application of the explanation to section 24(1) and the permissibility of splitting or apportioning expenses under section 10(2).

The court rejected the assessee's contention, clarifying that section 24(1) and section 10 operate at different stages in the assessment process. It was established that each business's profit and loss should be computed considering individual expenses, even if conducted by the same assessee. The court emphasized the necessity of determining true profit or loss by accounting for all expenses incurred. Section 10 allows for the computation of profits for "any business," indicating that expenses for each business must be separately considered, even if the tax is levied on the total profits of all businesses combined.

Ultimately, the court affirmed that the Income-tax Officer had the authority under section 10 to apportion expenses between the money-lending and speculation businesses. The decision highlighted the commercial practice and accounting principles requiring separate consideration of expenses for distinct businesses. The court's ruling favored the Income-tax Officer's equitable apportionment of expenses, ensuring accurate computation of profits and losses for each business.

In conclusion, the court answered the reference question in the affirmative, affirming the Income-tax Officer's power to apportion expenses between different businesses under section 10 of the Income-tax Act. The parties were directed to bear their own costs, and the counsel's fee was assessed at Rs. 200.