1970 (2) TMI 26 - HC - Income Tax

Expenditure Tax Act, 1957 - election expenditure of a political leader - amounts paid by way of cheques to the party officials - exemption may be claimed

Issues Involved:
1. Whether politics can be considered an "occupation" under the Expenditure-tax Act.
2. Whether the expenditure of Rs. 38,832 incurred for the election of other candidates is excludible from taxable expenditure under section 5(a) or 5(j) of the Expenditure-tax Act.
3. Whether the sum of Rs. 47,867 claimed as "party expenses" can be excluded from taxable expenditure under section 5(a) or 5(j) of the Expenditure-tax Act.
4. Whether the "previous year" for the purpose of assessment was correctly adopted as the period from July 1, 1956, to June 30, 1957.

Issue-wise Detailed Analysis:

1. Whether politics can be considered an "occupation" under the Expenditure-tax Act:

The court addressed whether politics could be termed an "occupation." The term "occupation" was defined broadly, encompassing any activity that occupies a person's time and attention, even without a profit motive. The court referred to the definition in the Shorter Oxford English Dictionary and the Supreme Court's ruling in P. Krishna Menon v. Commissioner of Income-tax, which stated that an activity need not be organized or profit-driven to be considered a vocation. The court also cited the Gujarat High Court's decisions in Commissioner of Expenditure-tax v. Manorama Sarabhai and Mridula A. Sarabhai v. Commissioner of Expenditure-tax, which supported the view that activities carried out with continuity and regularity could be considered occupations. The court concluded that the assessee's active engagement in politics since 1952, including holding significant positions and participating in elections, constituted an occupation.

2. Whether the expenditure of Rs. 38,832 incurred for the election of other candidates is excludible from taxable expenditure under section 5(a) or 5(j) of the Expenditure-tax Act:

The court examined whether the expenditure incurred by the assessee for the election of other candidates could be considered as incurred "wholly and exclusively" for the purpose of his occupation. The Tribunal had found that the assessee was engaged in politics as a career and held a significant position in the Socialist Party. The court reasoned that as the Chairman of the party, the assessee was concerned with the election of other candidates and that this expenditure was necessary for the advancement of his political career. The court concluded that the expenditure of Rs. 38,832 was incurred wholly and exclusively for the purpose of the assessee's occupation and was therefore excludible from taxable expenditure under section 5(a).

3. Whether the sum of Rs. 47,867 claimed as "party expenses" can be excluded from taxable expenditure under section 5(a) or 5(j) of the Expenditure-tax Act:

The court analyzed whether the amounts paid to the Secretary of the Socialist Party and other officials for party expenses could be considered donations under section 5(j). The Tribunal had found that these amounts were given gratuitously and without consideration. The court referred to the definition of "donation" in Corpus Juris Secundum, which implies the absence of consideration and a gratuitous transfer of property. The court held that the amounts paid by the assessee to the party officials were donations and thus excludible from taxable expenditure under section 5(j).

4. Whether the "previous year" for the purpose of assessment was correctly adopted as the period from July 1, 1956, to June 30, 1957:

The court addressed the contention that the "previous year" for assessment should be the financial year immediately preceding the Act's commencement. However, the court noted that the definition of "previous year" in section 2(n) of the Expenditure-tax Act aligns with the definition in the Income-tax Act. The assessee had adopted the period from July 1, 1956, to June 30, 1957, as the "previous year" in filing the return. The court concluded that the expenditure-tax authorities did not err in adopting this period as the "previous year" for assessment.

Conclusion:

The court answered the first two questions in favor of the assessee, holding that the expenditures were excludible from taxable expenditure under sections 5(a) and 5(j). The third question was answered in favor of the department, affirming the adoption of the "previous year" as the period from July 1, 1956, to June 30, 1957. The assessee was awarded costs, with an advocate's fee of Rs. 250.

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