1966 (3) TMI 3 - HC - Income Tax

There was no provision under the Act or the Rules which authorised the tax authorities to spread over a number of years the expenditure incurred in the accounting year and for which the assessee was entitled to deduction under s. 5(k) - Tribunal was not justified in law in reducing the allowable expenditure

Summary

Issues:
1. Whether the Appellate Tribunal was justified in reducing the allowable expenditure based on the cash basis system.
2. Whether the Tribunal had the authority to distribute or apportion the allowable expenditure over subsequent years.
3. Whether the Tribunal's decision was in line with the provisions of the Mysore Agricultural Income-tax Act, 1957.

Analysis:
1. The three revision petitions involved a common question of law regarding the reduction of allowable expenditure by the Appellate Tribunal. The assessees contended that the cash receipts attributable to prior years should be excluded from the total realizations during the accounting year. The Tribunal accepted this contention but reduced the allowable expenditure based on a proportionate approach, leading to grievances by the assessees in the revision petitions.

2. The second contention raised by the assessees was regarding the deduction of allowable expenditure incurred during the accounting year. The Tribunal found certain amounts to be admissible expenditure in each case, but it decided to apportion only a portion of the admissible expenditure against the actual cash receipts for the year. The assessees argued that the Tribunal had no competence to distribute or apportion the expenditure over subsequent years, as it deprived them of the benefit of section 15 of the Act allowing the carry-forward of losses.

3. The High Court analyzed Section 7 of the Act, emphasizing that the computation of agricultural income should align with the method of accounting regularly employed by the assessee unless specific conditions under the provisos are met. In these cases, the method of accounting was cash basis, and the agricultural income should have been computed accordingly. The expenditure for deduction under section 5(k) was found to be admissible, and the Tribunal's unauthorized apportionment of this expenditure over subsequent years was deemed to exceed its powers under the Act.

In conclusion, the High Court set aside the portion of the Tribunal's order that distributed the allowable expenditure over multiple years and directed the tax authorities to take necessary steps in accordance with the order. The Court held that there was no need to remand the cases to the Tribunal, as the High Court's revision powers allowed for the amendment of the order. The petitioners were awarded costs, and the Tribunal's decision was overturned due to the unauthorized apportionment of expenditure.