1967 (7) TMI 51 - HC - Income Tax

Amount spent in converting the latrines and the labourers quarters - deductibility - claim of deduction under section 10(2)(ii) made by the assessee was rightly rejected by the Tribunal

Summary

Issues:
1. Inclusion of amount realized towards charity in the income of the assessee.
2. Allowability of deduction for expenses incurred in converting premises.

Analysis:

Issue 1: Inclusion of amount realized towards charity in the income of the assessee

The assessee, a private limited company, realized a sum towards charity from the sale of bales during the accounting period relevant to the assessment year 1955-56. The amount was credited to a separate account named "Marwari Society Charitable Account." The Income-tax Officer included this amount of Rs. 9,809 in the income of the assessee. The Tribunal found that the amount realized was at the discretion of the assessee and not held under any trust or binding obligation for charitable purposes. The Tribunal held that the amount, being part of the sale transactions, constituted income from the business and was liable to be included in the total income of the assessee. The Tribunal did not consider a circular directing otherwise, stating that the decision must be based on income-tax law requirements. The High Court affirmed the Tribunal's decision, holding that the amount was rightly included in the total income of the assessee.

Issue 2: Allowability of deduction for expenses incurred in converting premises

The assessee claimed a deduction of Rs. 9,560 under section 10(2)(ii) for expenses incurred in converting manual latrines into flush latrines and replacing tiled roofs with cement roofs in premises rented for business purposes. The Tribunal found that the alterations made were substantial improvements to the property, not mere repairs to restore the original condition. Citing a legal precedent, the High Court agreed with the Tribunal's decision, stating that the alterations were capital expenditures for permanent improvements to the property. The High Court held that the claim for deduction under section 10(2)(ii) had no merit and was rightly rejected by the Tribunal. The High Court concluded that the second question must be answered in the negative, and the Commissioner of Income-tax was awarded costs.

In conclusion, the High Court upheld the Tribunal's decision regarding both issues, affirming the inclusion of the charity amount in the assessee's income and denying the deduction claim for premises conversion expenses.