1966 (1) TMI 3 - HC - Income Tax

receipts by way of Commission/rebate on purchase of petrol/diesel and proceeds of sales of tyres, tubes and empty barrels in a transport business constitute income - payment of tips/mamools in transport business is deductible in computing the income - they were held to be allowable

Summary

Issues Involved:
1. Whether the sums of Rs. 5,813, Rs. 4,415, Rs. 3,011, and Rs. 3,579 constitute income of the assessee assessable to tax.
2. Whether the alleged expenditure on mamools and wayside expenses is an admissible deduction in the computation of the assessee's income.
3. Whether the disallowance of the sums of Rs. 10,139, Rs. 5,311, and Rs. 1,226 out of the interest payable by the assessee on amounts borrowed by it is justified.

Detailed Analysis:

1. Assessability of Sums as Income:
The assessee, a private limited company operating a transport business, received commissions or rebates on purchases of petrol and diesel oil and proceeds from the sale of tyres, tubes, and empty barrels. These amounts were initially received by drivers and conductors, who used them for wayside expenses and mamools. Later, a resolution authorized the manager to receive these commissions and share any surplus with the cashier. The departmental authorities considered these sums as business income, arguing that the company could not give away part of its profits to employees merely by passing a resolution. The Tribunal found in favor of the assessee, stating that these expenditures were necessary for running the business smoothly. The High Court upheld this view, stating that the receipts constituted income and the expenditure was inevitable for the business.

2. Deductibility of Mamools and Wayside Expenses:
The assessee claimed deductions for mamools and wayside expenses, which were described as "greases to run the bus business smoothly." The departmental authorities disallowed these deductions due to the lack of documentary evidence. The Tribunal, however, found that due to the nature of the expenses, documentary evidence was impractical. The High Court agreed, stating that the Tribunal was justified in believing the assessee's statements and that the expenses were not unreasonable given the large collections and incomes returned. The Court also noted that the transport business was lawful and the tips, although possibly improper, were not necessarily illegal. Thus, the expenditure was considered deductible.

3. Disallowance of Interest on Borrowings:
The assessee had made advances to some directors without charging interest while borrowing money for its trade on which it paid interest. The departmental authorities disallowed a portion of the interest claimed for deduction, arguing that the borrowed money was diverted for non-business purposes. The Tribunal reversed this view, noting that the advances to directors were made in years prior to September 30, 1955, and that it was difficult to determine the specific source of funds used for these advances. The High Court upheld the Tribunal's decision, stating that the Tribunal did not misplace the onus of proof and that its finding was justified based on the materials on record.

Conclusion:
The High Court held that the sums received by the assessee as commission or rebate and from the sale of tyres, tubes, and empty barrels constituted income. The expenditure on mamools and wayside expenses was deemed deductible. The disallowance of interest on borrowings was not justified. Thus, the first question was answered against the assessee, while the second and third questions were answered in favor of the assessee. The assessee was entitled to its costs, with counsel's fee set at Rs. 250.