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1968 (8) TMI 27 - HC - Income TaxKerala Agricultural Income Tax Act, 1950 - expenses for preparation of the agricultural income-tax returns - held that impugned expenditure are allowable in determining the assessable income under the Agrl. IT Act
Issues Involved:
1. Whether expenses for preparation of agricultural income-tax returns are allowable in determining assessable income under the Agricultural Income-tax Act. 2. Whether a floating charge on estates in Kerala qualifies as a 'mortgage or other capital charge' under section 5(f) of the Agricultural Income-tax Act. 3. Whether a floating charge on the estate in Kerala can be considered a charge on the property unless the amount becomes irrecoverable from specifically mortgaged properties, and such a contingency had not arisen in the accounting year. Detailed Analysis: Issue 1: Allowability of Expenses for Preparation of Agricultural Income-tax Returns Relevant Provision: Section 5(j) of the Agricultural Income-tax Act, 1950. The court examined whether an expense of Rs. 50 paid to the auditor for preparing income-tax returns and necessary statements is allowable under Section 5(j) of the Act. The assessee argued that this expense falls under "any expenditure... laid out or expended wholly and exclusively for the purpose of deriving the agricultural income." The court compared this provision with Section 10(2)(xv) of the Indian Income-tax Act, 1922, and Section 37 of the Income-tax Act, 1961, concluding that both statutes aim to allow expenses incurred for deriving income, irrespective of whether the business results in profits or gains. Key Judgments Referenced: - Smith's Potato Estates Ltd. v. Inland Revenue Commissioner: The House of Lords held that legal and accountancy expenses for tax appeals were not allowable, as they were not directly associated with carrying on the business but were for satisfying revenue authorities. - S. D. Sharma v. Commissioner of Income-tax (Bombay High Court): Fees paid to income-tax consultants were not allowable. - Birla Cotton Spinning and Weaving Mills Ltd. v. Commissioner of Income-tax (Calcutta High Court): Fees paid to lawyers for appearing before tax authorities were allowable. The court agreed with the majority view in Smith's Potato Estates Ltd., concluding that expenses incurred for preparing tax returns are not directly related to deriving agricultural income and are therefore not allowable. Issue 2: Floating Charge as 'Mortgage or Other Capital Charge' Relevant Provision: Section 5(f) of the Agricultural Income-tax Act, 1950. The court examined whether the floating charge on the assessee's Kerala properties qualifies as a 'mortgage or other capital charge' under Section 5(f). The definition and nature of a floating charge were discussed, referencing Lord Macnaghten's description in Government Stock and Other Securities Investment Company v. Manila Railway Co. and subsequent clarifications in Illingworth v. Houldsworth. Key Points: - A floating charge is an equitable charge on the assets of a going concern, remaining dormant until the business ceases to be a going concern or the charge crystallizes upon an event. - The court noted that a floating charge does not attach to specific property until it crystallizes. Conclusion: Since no event had occurred to crystallize the floating charge on the Kerala properties, the court held that these properties were not subject to a 'mortgage or other capital charge' within the meaning of Section 5(f). Issue 3: Contingency of Floating Charge Becoming Irrecoverable The court noted that this question did not arise from the order of the Appellate Tribunal but was an argument presented by the Commissioner of Agricultural Income-tax. The court's discussion on Issue 2 addressed the relevant aspects, concluding that the floating charge had not crystallized and therefore did not constitute a charge on the property. Final Judgment: The court answered questions 1 and 2 in the negative and against the assessee, holding that: 1. Expenses for preparing agricultural income-tax returns are not allowable in determining assessable income. 2. The floating charge on the estates in Kerala does not qualify as a 'mortgage or other capital charge' under Section 5(f). Question 3 was deemed not to arise from the Tribunal's order. Each party was ordered to bear its own costs.
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