1971 (8) TMI 83 - HC - Income Tax

1. Whether assessee is entitled to the deduction commission paid on borrowing shares for purposes of pledging them as security with the income-tax department - 2. Whether assessee is entitled to the deduction of legal expenses - 3. Whether AAC was competent to substitute the figure of Rs. 3, 73, 075 as the amount of loss carried forward - 4. Whether Tribunal was right in holding that the amount of Rs. 2, 00, 348 represented capital expenditure and was not a permissible deduction under section 10(2)(xv) of the Indian Income-tax Act 1922 - questions Nos. 1 3 and 4 are answered in favour of the department and against the assessee and question No. 2 is answered in favour of the assessee and against the department

Summary

Issues Involved:
1. Deduction of commission paid on borrowing shares for pledging as security.
2. Deduction of legal expenses incurred in connection with income-tax matters.
3. Competence of the Appellate Assistant Commissioner to substitute the figure of loss carried forward.
4. Classification of an amount as capital expenditure or revenue expenditure.

Issue-wise Detailed Analysis:

1. Deduction of Commission Paid on Borrowing Shares:
The first issue concerns whether the assessee is entitled to deduct a sum of Rs. 8,645 representing commission paid on borrowing shares for pledging them as security with the income-tax department. The court held that this issue is concluded by its previous judgment in Dalmia Dadri Cement Ltd. v. Commissioner of Income-tax. The court reaffirmed that the decision of the Supreme Court in Commissioner of Income-tax v. Birla Cotton Spinning and Weaving Mills Ltd. does not cast any doubts on this view. Therefore, the answer to the first question is concluded by the previous decision, which implies that the deduction is not permissible.

2. Deduction of Legal Expenses:
The second issue pertains to whether the assessee is entitled to the deduction of Rs. 6,174 being the legal expenses incurred in connection with income-tax matters. This issue is governed by the Supreme Court's decision in Commissioner of Income-tax v. Birla Cotton Spinning & Weaving Mills Ltd., which allows such deductions. Therefore, the court concluded that the assessee is entitled to this deduction.

3. Competence of the Appellate Assistant Commissioner:
The third issue involves whether the Appellate Assistant Commissioner was competent to substitute the figure of Rs. 3,73,075 as the amount of loss carried forward from the assessment year 1959-60, in place of the sum of Rs. 5,60,148 shown by the Income-tax Officer. The court examined the relevant sections of the Indian Income-tax Act, 1922, particularly Sections 35 and 31. It concluded that the Appellate Assistant Commissioner has the power to correct errors and enhance assessments as long as the entire assessment is under appeal. This was supported by the Supreme Court's rulings in Commissioner of Income-tax v. McMillan & Co. and Commissioner of Income-tax v. Rai Bahadur Hardutroy Motilal Chamaria. The court found that the Appellate Assistant Commissioner acted within his powers and confirmed the enhancement.

4. Classification of an Amount as Capital Expenditure:
The fourth issue is whether the amount of Rs. 2,00,348 represented capital expenditure and was not a permissible deduction under section 10(2)(xv) of the Indian Income-tax Act, 1922. The court reviewed the facts, which involved the assessee's dealings with Messrs. Hazemag of Germany for a dryer plant. The court held that the expenditure for acquiring a plant is of a capital nature, and any loss suffered in that transaction would also be of a capital nature. This conclusion was supported by the Supreme Court's decision in Swadeshi Cotton Mills Co. Ltd. v. Commissioner of Income-tax. Therefore, the court concluded that the amount represents capital expenditure.

Conclusion:
- Questions 1, 3, and 4: Answered in favor of the department and against the assessee.
- Question 2: Answered in favor of the assessee and against the department.

There will be no order as to costs.