1967 (7) TMI 35 - HC - Income Tax

Appellate Assistant Commissioner - AAC in exercise of his power u/s 31(3), set aside that part of the order of the ITO (by enhancing the assessment by disallowing certain items which had been allowed by the ITO) and directed inclusion of the amount in the computation of the assessee s income. In so doing the AAC did not act without any jurisdiction

Issues Involved:
1. Jurisdiction of the Appellate Assistant Commissioner to enhance the assessment.
2. Allowability of wealth-tax as a permissible deduction.
3. Whether the subscription to the Indian National Congress was ultra vires the memorandum of association.
4. Whether the subscription was an expenditure laid out wholly and exclusively for the purpose of the assessee's business.

Detailed Analysis:

1. Jurisdiction of the Appellate Assistant Commissioner to Enhance the Assessment:
The assessee argued that the Appellate Assistant Commissioner (AAC) was not entitled to assume jurisdiction to enhance the assessment by disallowing certain items allowed by the Income-tax Officer (ITO). The AAC overruled the objections, finding nothing in the language of section 31(3) of the Indian Income-tax Act to uphold the objections. The Tribunal supported this view, stating that the AAC's powers are not curtailed by the existence of other proceedings and can correct any error in assessment provided he acts within his powers under section 31.

The court affirmed the Tribunal's stance, noting that the AAC has broad powers to revise every process leading to the ultimate computation or assessment. The court found no evidence that the AAC was influenced by the ITO and held that the AAC acted within jurisdiction in enhancing the assessment.

2. Allowability of Wealth-Tax as a Permissible Deduction:
The court referred to the Supreme Court decision in Travancore Titanium Products Ltd. v. Commissioner of Income-tax and a decision of the Calcutta High Court in Income-tax Reference No. 44 of 1963, which held that wealth-tax is not an allowable expenditure under section 10(2)(xv) of the Indian Income-tax Act. Consequently, the court answered this question in the negative and against the assessee.

3. Whether the Subscription to the Indian National Congress was Ultra Vires the Memorandum of Association:
The AAC and the Tribunal found that the subscription to the Indian National Congress was ultra vires the company as the payment was made before the memorandum of association was altered to authorize such donations. The court upheld this view, noting that at the time of the contribution, the company had no jurisdiction to make such a contribution, rendering the action ultra vires.

4. Whether the Subscription was an Expenditure Laid Out Wholly and Exclusively for the Purpose of the Assessee's Business:
The court examined whether the contribution to the Indian National Congress could be considered an expenditure laid out wholly and exclusively for the business under section 10(2)(xv) of the Indian Income-tax Act. The court noted that commercial expediency must be established on a case-by-case basis. The reasons provided by the assessee, such as cultivating political patronage and preventing nationalization, were found to be too general, uninformative, or speculative.

The court emphasized that there was no evidence that the contribution facilitated the business directly or indirectly. The court concluded that the contribution to the political fund was not justified by commercial expediency and was not laid out wholly and exclusively for business purposes. Therefore, the expenditure did not qualify for deduction under section 10(2)(xv).

Conclusion:
The court answered all questions against the assessee, affirming the Tribunal's decision that the AAC was justified in enhancing the assessment, wealth-tax is not an allowable deduction, the subscription to the Indian National Congress was ultra vires the memorandum of association, and the subscription was not an expenditure laid out wholly and exclusively for the business purpose. The Commissioner of Income-tax was entitled to costs, certified for two counsel.

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