1986 (2) TMI 95 - AT - Income Tax

Summary

Issues:
1. Disallowance of deduction for municipal taxes.
2. Disallowance of provision for loss on Foreign Exchange Contract.
3. Disallowance of collection charges.

Detailed Analysis:
1. The first issue involves the disallowance of a major portion of the assessee's claim for deduction of municipal taxes for the assessment years under consideration. The assessee claimed deductions for municipal taxes levied, but the Income Tax Officer (ITO) disallowed a significant portion of the claimed amounts, stating they were not related to the assessment years in question. The Commissioner of Income Tax (Appeals) upheld the ITO's decision. The authorized representative for the assessee argued that the municipal taxes were contested but subsequently finalized, and the amounts levied by the Corporation should be allowed as deductions. The Departmental Representative opposed this, citing legal precedents. The Tribunal noted that deductions for municipal taxes are allowable in the year they are levied, not in the years to which they relate, as established in previous court cases. The Tribunal remanded the matter to the ITO to determine if the amounts were levied in the assessment years under consideration before allowing the deductions.

2. The second issue pertains to the disallowance of a provision for loss on a Foreign Exchange Contract. The ITO disallowed the amount with the observation that no details were provided to prove that the loss actually occurred during the assessment year. The Commissioner of Income Tax (Appeals) confirmed this disallowance, suggesting it might be in the nature of speculative transactions. The authorized representative for the assessee argued that the amount represented damages for breach of contract, not speculation loss, based on the facts presented. The Tribunal, after careful consideration, concluded that the amount was indeed damages for breach of contract and directed the ITO to allow it in computing the assessee's income.

3. The final issue involves the disallowance of collection charges claimed by the assessee for building maintenance. The ITO disallowed the claim without considering it while computing the income from house property. The CIT(A) also disallowed the claim for collection charges. The authorized representative contended that collection charges at 6% should have been allowed under the relevant provision of the Income Tax Act. The Tribunal noted that neither the ITO nor the CIT(A) provided valid reasons for disallowing the collection charges and directed the ITO to allow collection charges at 6% of the annual value, as per the statutory provision. Consequently, the appeals were allowed on these grounds.