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1991 (11) TMI 43
Assessment, Firm, Gift ... ... ... ... ..... Pershad v. Sham Sunder, AIR 1947 Lah 13 FB and in Addanki Narayanappa v. Bhaskara Krishnappa, AIR 1959 . P 380 FB , has received the seal of approval of the Supreme Court in Addanki Narayanappa v. Bhaskara Krishnappa, AIR 1966 SC 1300 and Sunil Siddharthbhai v. CIT 1985 156 ITR 509 (SC). In that view of the matter, the Tribunal went wrong in holding that the partners had the right to transfer any share in the property. Our answer to the first question is that the Tribunal was not justified in law in holding that individually the partners could gift the property of the firm to their respective wives during the subsistence of the partnership firm. Consequently, our answer to the second question is that the Tribunal was not justified in holding that the assessee-firm could not be assessed to tax on the rental income from the property at Madras from July, 1982. Both the questions are answered in favour of the Revenue and against the assessee. No costs. S. K. MOHANTY J. -I agree.
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1991 (11) TMI 42
Issues Involved: The correctness of the order passed by the Income-tax Appellate Tribunal under section 254(2) of the Income-tax Act, 1961 is challenged.
Judgment Summary:
Issue 1: Application of Section 254(2) of the Income-tax Act The Commissioner challenged the Tribunal's order under section 254(2) of the Act, alleging a mistake apparent from the record regarding the applicability of section 176(3A). The Tribunal recalled its earlier order to rectify the alleged mistake. The Commissioner contended that there was no such mistake, as the Tribunal did refer to the relevant aspect. The Court analyzed the meaning of "mistake apparent from the record" and held that the Tribunal's conclusion of a mistake was erroneous. The Court emphasized that the power under section 254(2) is to rectify patent mistakes, not debatable points of law.
Issue 2: Power of Tribunal to Recall Order The Court examined whether the Tribunal had the authority to recall its entire order and direct a rehearing under section 254(2). It clarified that the power to amend an order does not entail replacing the original order. Recalling the entire order would necessitate passing a fresh order, contrary to the legislative intent. The Court ruled that an order under section 254(2) merges with the original order and cannot exist independently. Recalling an order is not permissible under section 254(2) except in specific circumstances outlined in the rules.
Additional Points Raised The Court dismissed the argument for an alternative remedy through seeking reference under section 256, stating that section 254(2) rectification does not lead to a new order eligible for reference. It also rejected the contention of injustice based on a previous case, emphasizing that the Tribunal's jurisdiction must align with the law. Consequently, the Court quashed the Tribunal's order recalling the original decision.
Conclusion The Court allowed the writ application, quashed the impugned order, and directed the restoration and disposal of reference applications by the Tribunal in accordance with the law. The Court clarified that its observations in the writ application should not influence the disposal of the reference applications. The judgment was a unanimous decision by the Judges.
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1991 (11) TMI 41
Actual Cost, Depreciation ... ... ... ... ..... inging about rapid industrial growth in the State, and the subsidy is granted as an incentive, it cannot be inferred, unless materials indicate to the contrary, that the subsidy is granted to the entrepreneurs to meet part of the actual cost. The mere fact that a certain percentage of the fixed capital cost is adopted as a measure for quantification of the subsidy is of no consequence. The object of the grantor has to be gathered. On facts, the Commissioner of Income-tax (Appeals) and the Tribunal have come to hold that the subsidy was not intended to be a reimbursement but, on the contrary, its grant was circumscribed by certain other conditions relating to the grantee s entitlement. It is not shown to us that the conclusion of the Tribunal is factually untenable or against the weight of evidence on record. That being the position, our answer to the question referred is in the affirmative, in favour of the assessee and against the Revenue. No costs. S. K. MOHANTY J.-I agree.
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1991 (11) TMI 40
Issues Involved: The issue in this case is whether the Income-tax Appellate Tribunal was justified in recalling its order under section 254(2) of the Income-tax Act, 1961.
Background: A partnership-firm, assessed for the year 1982-83, had an addition of Rs. 60,540 to its income. The Tribunal found defects in the maintenance of books of account and restored the addition made by the Assessing Officer.
Rectification Application: The assessee filed an application under section 254, citing mistakes apparent from the record, such as discrepancies in the assessment order. The Tribunal set aside the original order and directed a rehearing, considering the discrepancy of Rs. 11 excessive for an addition of Rs. 60,540.
Legal Analysis: The High Court analyzed the scope of section 254(2), emphasizing that rectifiable mistakes must be patent and obvious. The Tribunal's action of recalling the order was deemed unjustified as it exceeded the jurisdiction granted under the Act. The Court highlighted that the Tribunal's role was not to reevaluate the enhancement made but to rectify mistakes apparent from the record.
Conclusion: The High Court allowed the writ application, setting aside the Tribunal's order and restoring the reference applications for further legal proceedings. The Court clarified that its observations did not reflect an opinion on the assessment merits but were made in the context of the writ application.
This judgment clarifies the legal principles governing the rectification of mistakes under the Income-tax Act and emphasizes the limitations of the Tribunal's authority in recalling orders based on perceived discrepancies.
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1991 (11) TMI 39
Income Tax Clearence Certificate ... ... ... ... ..... e of the shares so transferred happens to be more than rupees two lakhs. In substance, what is transferred by the sharer is his individual share. For the purpose of section 230A of the Income-tax Act, it is the value of the property of a person who makes a transfer which has to be considered. It is not in dispute that each one of the sharers, viz., wife and children, took an equal share. The value of their respective property, inherited by each one of the heirs, is less than rupees two lakhs because the total value of the property itself is only Rs. 5,25,000. In this view, the direction issued by the second respondent to the petitioners to produce an income-tax clearance certificate under section 230A of the Income-tax Act cannot be sustained. The document in question will be registered, if it is otherwise found to be in order in accordance with law without insisting on a certificate under section 230A of the Income-tax Act. The writ petition is ordered accordingly. No costs.
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1991 (11) TMI 38
Business Expenditure ... ... ... ... ..... circumstances of the case, this view taken by the Tribunal and the Appellate Assistant Commissioner is correct. The business of the assessee is to provide facilities to staff members of other companies. As pointed out above, the facilities which the assessee provided include lodging and boarding facilities to the said staff members and it is to provide these facilities that the assessee has taken premises on rent. The expenditure in question was incurred for payment of rent. Since it is the business of the assessee to provide facilities as stated above and it was for the said business it had rented premises and paid rent of Rs. 32,382, it is obvious that the expenditure of Rs. 32,382 is a trading expenditure, deduction whereof is permissible under section 28 of the Act. We, therefore, uphold the view taken by the Tribunal and answer the question which has been referred to us, in the affirmative and against the Revenue. Reference answered accordingly with no order as to costs.
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1991 (11) TMI 37
... ... ... ... ..... reduction of the said amount in the provision for tax liabilities is inevitable, cannot be accepted. The provisions for computation either of assets or of liabilities are artificial and there is no scope to introduce considerations based on actuality in interpreting the same. Tax laws are dry and prosaic, having no place for equity or sentiments and have to be strictly construed. There is no room for any intendment or presumption. Nothing is to be read in, nothing is to be implied. One has fairly to look at the plain language used and if it is ambiguous and capable of two constructions, the construction favourable to the subject ought to be adopted. The Tribunal is perfectly right in coming to the conclusion that it was bound by the decision of the Bombay High Court which is the jurisdictional court for it and in refusing to make a reference on the ground that it would be an exercise in futility. Under the circumstances, these applications are dismissed without issuing rule.
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1991 (11) TMI 36
... ... ... ... ..... ) Now, the entire exercise, as we see, is to ensure that the total amount of tax payable by an assessee on the income, profits and gains for the relevant assessment year is allowed as a deduction. The deduction is allowed partly by excluding the advance tax already paid from the assets side and partly by allowing the balance by way of provision for taxation on the liabilities side. For the reasons already noticed, we respectfully disagree with the above view. Controversy is going on. We are informed that the Department has challenged the Gujarat High Court decision in the Supreme Court. The Andra Pradesh High Court has granted leave to appeal to the Supreme Court under section 29(1) of the Wealth-tax Act. The point is thus pending in the Supreme Court, but that pendency, under the circumstances, is no ground to either entertain these applications or to keep them pending. Under the circumstances, the applications are summarily rejected without issuing notice to the assessees.
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1991 (11) TMI 35
Issues involved: Whether the expenditure incurred for obtaining a techno-economic feasibility report and consultation for a soda ash plant can be considered as revenue expenditure or capital expenditure.
Summary: The High Court of Gujarat considered the case of a public limited company for the assessment year 1973-74, where the company claimed deduction of amounts paid for obtaining a techno-economic feasibility report and consultation fees as revenue expenditure. The Income-tax Officer and the Appellate Assistant Commissioner considered the expenditure as capital expenditure for expanding the business. The Income-tax Appellate Tribunal upheld this view, stating that the establishment of a new unit, even if part of the existing business, would constitute capital expenditure. The Court was tasked with determining whether the Tribunal's decision was correct in law.
To be allowed as business expenditure u/s 37 of the Income-tax Act, 1961, the expenditure must be revenue in nature, laid out exclusively for business purposes, and not covered by specific sections of the Act. The Tribunal found that the company's expenditure was for acquiring a new asset, making it capital in nature. The Court agreed with this finding, stating that once an expenditure is for acquiring a capital asset, it cannot be deducted u/s 37. Citing relevant case law, the Court held that the expenditure in question was rightly disallowed as capital expenditure, affirming the Tribunal's decision.
In conclusion, the Court answered the question referred to them in the affirmative, stating that the expenditure for obtaining the techno-economic feasibility report and consultation for the soda ash plant was rightly disallowed as capital expenditure. The reference was answered accordingly, with no order as to costs.
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1991 (11) TMI 34
Business Expenditure, Firm ... ... ... ... ..... wn skill, learning and acumen need not be considered in this case. The circumstances under which Rashiklal was to be paid commission as reflected in the agreement were known, to the firm. The assessee ought to have brought materials to indicate that payment to Rashiklal was not payment to a partner. Accordingly, the general presumption being that the payment to a karta enures to the benefit of the undivided family, payment of commission under the agreement has rightly been held by the Tribunal on the facts and in the circumstances of the case to be payment to a partner exigible to tax in view of the prohibition under section 40(b). There is also no prohibition for a juristic person like a Hindu undivided family carrying on business as a commission agent though, having no living mind, it has to act through individuals. In the result, the question is to be answered in favour of the Revenue and against the assessee. There shall be no order as to costs. S. K. MOHANTY J.-I agree.
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1991 (11) TMI 33
Issues involved: The judgment addresses two main issues: 1. Whether the sum of Rs. 40,651 incurred for serving tea and cool drinks to customers was liable to be disallowed under section 37(2B) of the Income-tax Act. 2. Whether the sum of Rs. 23,022 incurred as staff house expenses, including rent and water connection, was liable to be disallowed under section 37(4) of the Act.
Issue 1 - Tea and Cool Drinks Expenditure: The assessee, a public limited company, incurred Rs. 40,651 on serving tea and cool drinks to customers and claimed it as business expenditure. The Income-tax Officer disallowed this under section 37(2B), but the Appellate Assistant Commissioner allowed it as business expenditure under section 37(1). The Tribunal upheld this view, stating the expenditure was not for entertainment but for business, thus deductible under section 37(1). The court agreed, citing a previous case, and answered in favor of the assessee.
Issue 2 - Staff House Expenses: The assessee spent Rs. 23,022 on a guest house for staff members. The Income-tax Officer disallowed this under section 37(4) for maintaining a guest house. However, the Appellate Assistant Commissioner allowed the deduction, which the Tribunal confirmed. The Revenue argued that post-1970, such expenditure was not deductible under section 37(4). The court analyzed relevant sections and found the expenditure was covered under section 30 for rent and repairs, not falling under section 37(1). Referring to a Bombay High Court case, the court held that the expenditure was allowable under sections 30 and 31, not section 37(1), thus not disallowable under section 37(4). The court allowed deduction for Rs. 19,739 but denied for the remaining Rs. 3,283 due to lack of details.
In conclusion, the court answered both questions in favor of the assessee for the tea and cool drinks expenditure and partially for the staff house expenses, based on the specific provisions of the Income-tax Act.
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1991 (11) TMI 32
Firm, Partners, Writ ... ... ... ... ..... factual question to be considered by the Income-tax Department while settling accounts. Anyhow, there cannot be any dispute regarding the fact that, on principles of law, the respondents are entitled to appropriate out of the amounts in deposit only the net amount due to Channaiah after deducting the expenses and liabilities in the light of what is stated above. Exhibits P-25 and P-29 at any rate are liable to be quashed. The original petition is, therefore, allowed. Exhibits P-25 and P-29 are hereby quashed. The respondents are hereby directed to settle the accounts in the light of what is stated in the previous paragraph. After such settlement, the net amount found due to Channaiah as his one-third share alone will be appropriated towards his income-tax arrears. The balance amount will be refunded to the petitioner-firm. The respondents will see that the settlement and refund, if any, are made as early as possible, at any rate not later than six months from today. No costs.
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1991 (11) TMI 31
... ... ... ... ..... . The scope of the section is limited to rectification of mistakes and not to review or revision. The mistake apparent from the record is a mistake that is manifest, plain or obvious and one which can be realised without a debate or dissertation. The mistake must be evident from the records of the case and not one which can be corrected by a process of elucidation or argument. There is no indication in the order regarding any such mistake. No reason has been indicated for exercise of powers under section 35(1)(e) of the Act. The order, being non-reasoned, is interdicted and is unsustainable. Without being influenced by any observations made herein, the Tribunal shall rehear the matter and consider whether a case for exercise of power under section 35(1)(e) of the Act is made out. We quash the impugned order, annexure 1, and remit the matter to the Tribunal with the aforesaid observations. The writ application is, accordingly, disposed of. No costs. S. K. MOHANTY J. -I agree.
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1991 (11) TMI 30
Exemptions, Wealth Tax ... ... ... ... ..... the purpose thereof is obviously to secure the repayment of money advanced or to be advanced by way of loan, or the performance of an engagement and normally there is no right to the usufruct of the property. It was argued that it is quite possible that, in the present case, both the lessor and the lessee may ultimately claim the benefit of this exemption. This does not necessarily result in denial of the assessee s claim. It is also always possible to have a set of ownerships subsisting in a property. The rights of the holders may not be exactly similar. One person may have one kind of right and another person another kind, but both are the owners of the rights. So, this argument by itself should not be fatal to the assessee s claim. The rights may flow from the same property in separate streams converging on different persons. For the reasons aforesaid, the question in this reference is answered in the affirmative and in favour of the assessee. SHYAMAL KUMAR SEN J.-I agree.
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1991 (11) TMI 29
HUF, Reassessment ... ... ... ... ..... sment proceeding is initiated against person, the original order of assessment becomes non est and it is open to the authorities to redetermine all the issues relating to the assessment of the assessee which will include the question of status as well. Keeping in view this legal aspect, in my considered view, there was nothing wrong on the part of the appellate authorities in entertaining the objection of the assessee to the effect that his share income from the firm, M/s. Karmandana and others, could not have been legally assessed in his hands as his individual income. Keeping in view the discussions made above, the question referred to this court is answered in the affirmative, i.e., against the Department and in favour of the assessee. However, there shall be no order as to costs. Let a copy of this order be transmitted to the Assistant Registrar of the Income-tax Appellate Tribunal, Patna Bench, Patna, in terms of section 260 of the Act. S. K. CHATTOPADHYAYA J. -I agree.
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1991 (11) TMI 28
Issues Involved: The judgment involves the interpretation of the term "manufacture" under section 32A of the Income-tax Act, 1961, specifically in relation to the claim for investment allowance by a partnership firm engaged in the production of small iron pieces from big iron ingots.
Judgment Details:
Claim for Investment Allowance: The partnership firm claimed deduction under section 32A of the Act for the assessment year 1980-81, asserting that its machinery was used for manufacturing small iron pieces from big iron ingots. The Assessing Officer initially denied the claim, stating that no manufacturing was involved. The Appellate Assistant Commissioner considered the operation as processing, not manufacturing. However, the Tribunal concluded that the disintegration of big boulders into small iron pieces constituted manufacturing, citing a decision of the Madras High Court. The Tribunal found that the use of a crane to convert big iron ingots into small pieces of iron qualified as a manufacturing activity, producing commercially different articles or things. The Commissioner of Income-tax sought a reference, which was accepted by the Tribunal and referred to the High Court under section 256(1).
Interpretation of "Manufacture": The term "manufacture" under section 32A of the Act requires a transformation where a new and different article emerges with distinctive features. Not every change is considered manufacture; there must be a substantial transformation resulting in a distinct commercial commodity. Various legal precedents were cited to define manufacturing, emphasizing the emergence of a new substance or article with a unique name, character, or use. The courts have stressed that the processing of the original material must lead to the creation of a commercially different and distinct commodity to qualify as manufacturing.
Conclusion: The High Court affirmed the Tribunal's finding that the partnership firm's activity resulted in the production of a different and distinctive commercial commodity, meeting the criteria for manufacturing under section 32A. The Court highlighted that factual conclusions, unless proven perverse or baseless, should not be overturned in reference jurisdiction. The judgment favored the assessee, upholding their claim for investment allowance under section 32A. The decision was unanimous, with no costs awarded.
This summary encapsulates the key issues, legal interpretations, and conclusions of the judgment, providing a comprehensive overview of the case.
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1991 (11) TMI 27
Actual Cost, Depreciation, Investment Allowance ... ... ... ... ..... have received Central Government subsidy during the previous year relating to the assessment year under consideration. The Income-tax Officer, while completing the assessment, deducted the amount of subsidy so received from the cost of plant and machinery, building, etc., for the purpose of granting depreciation and investment allowance under section 32 of the Income-tax Act, 1961. Arguments of Mr. Shishodia, standing counsel for the Department, were heard. The matter stands concluded by the decision of the Rajasthan High Court in CIT v. Ambica Electrolytic Capacitors Pvt. Ltd. 1991 191 ITR 494, in which their Lordships have held that the subsidy is a grant for encouraging entrepreneurs to come forward and develop the backward areas and as such cannot be deducted from the cost of the assets of the assessees for denying the benefit of depreciation or investment allowance. Following the said decision, the references are answered in the negative and in favour of the assessees.
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1991 (11) TMI 26
... ... ... ... ..... rically that once a flat rate was applied on the award money, there was no justification in going itemwise for allowance or disallowance. Even assuming that this conclusion was erroneous, it cannot be characterised as a mistake which is rectifiable under section 254(2). The Tribunal, therefore, fell into a grave error in accepting the prayer of the assessee for rectification. The order is interdicted on that score. We, accordingly, quash annexure-1. It is submitted by learned counsel for the assessee that, since the assessee had filed an application for rectification, it could not take steps for filing an application for reference. Considering the fact that the Tribunal was moved under section 254(2), if a reference application is filed within ten days from today along with an application for condonation of delay, the Tribunal would do well to condone the delay and hear the reference application on merits. The writ application is allowed. No costs. S. K. MOHANTY J. -I agree.
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1991 (11) TMI 25
Issues Involved: 1. Whether sales tax collected by the assessee and paid after the end of the relevant previous year but within the time allowed under the relevant sales tax law is to be disallowed u/s 43B of the Income-tax Act, 1961, while computing the business income of the said previous year.
Summary:
1. Legislative History and Interpretation of Section 43B: The court traced the legislative history of section 43B, which was inserted by the Finance Act, 1983, effective from April 1, 1984. Section 43B mandates that certain deductions, including taxes, are only allowable on actual payment. The original provisos introduced by the Finance Act, 1987, and subsequent amendments by the Finance Act, 1989, were discussed to clarify the legislative intent. The amendments aimed to address practical difficulties faced by taxpayers, particularly regarding the payment of sales tax for the last quarter of the previous year.
2. Interpretation of Proviso and Explanation 2: The court examined the proviso to section 43B, which allows deductions if the tax is paid by the due date for filing the return u/s 139(1). Explanation 2, introduced by the Finance Act, 1989, clarifies that "any sum payable" means a sum for which the liability was incurred in the previous year, even if not payable within that year. The court emphasized that the proviso should be read harmoniously with Explanation 2, indicating that the proviso was intended to be retrospective from April 1, 1984.
3. Judicial Precedents and Legislative Intent: The court referred to various judicial precedents, including the Patna High Court's decision in Jamshedpur Motor Accessories Stores v. Union of India, which held that the proviso to section 43B is retrospective. The court disagreed with the Delhi High Court's contrary view in Sanghi Motors v. Union of India and Escorts Ltd. v. Union of India. The court highlighted the importance of interpreting statutes to avoid unjust or absurd results and to achieve the legislative intent.
4. Tribunal's Decision and Procedural Observations: The court noted that the Tribunal had relied on an earlier decision without providing detailed reasons. It emphasized that when the Tribunal relies on an earlier decision, it should indicate the gist of the conclusions. The court also observed that some first appellate authorities had deleted additions on the ground that the amount was not claimed in the profit and loss account, a view expressed by the Allahabad High Court in CIT v. S. B. Foundry.
Conclusion: The court answered the question in the negative, in favor of the assessee and against the Revenue, holding that the sales tax collected and paid within the time allowed under the relevant sales tax law should not be disallowed u/s 43B.
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1991 (11) TMI 24
Appeal To Tribunal ... ... ... ... ..... ated July 2, 1987, in I.T.A. No. 2113(All.)/1984, with a direction to rehear the case which was passed by them after a careful consideration of all the grounds of appeal taken by the Revenue ? It is urged by learned standing counsel that the arguments were duly addressed before the Tribunal on this ground. It is conceded by him that the Tribunal has not at all discussed that ground in its order and complete omission to discuss the ground set up in appeal is undoubtedly a mistake apparent from the record. There being no controversy on the fact that the Tribunal completely omitted to consider the ground, in our opinion, the aforesaid question is not referable and, therefore, the application is dismissed. No order as to costs.
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