S.C. decisions. - Income Tax - 1675/CBDT

INSTRUCTION NO. 1675/CBDT Dated: December 13, 1985 Please refer to Board's Instruction No. 1631 dated 26th June, 1985, copy enclosed. Recently the Supreme Court has rendered a few judgements on some important issues. Some of them are as under : (1) Shree Sajjan Mills Ltd. Vs. CIT (M.P) dated 8th October, 1985 (1985) 156 ITR 1(St) in regard to payments or provision for gratuity. The Court has inter-alia held that : "On a plain construction of clause (a) of sub-section (7) of Section 40A of the Act, what it means is that whatever is provided for future use by the assessee out of the gross profits of the year of account for payment of gratuity to employees on their retirement or on the termination of their services would not be allowed as deduction in the computation of profits and gains of the year of account. (para 32) Clause (b)(i) excludes from the operation of clause (a) contribution to an approved gratuity fund and amount provided for or set apart for payment of gratuity which would be payable during the year of account. Clause (b)(ii) deals with a situation that the assessee might provide by the spread-over method and provides that such provision would be excluded from the operation of clause (a) provided the three conditions laid down by the sun-clauses are satisfied. The submission of the assessee that if no provision is made by the assessee for gratuity, still the same will be deductible and section 40A(7) will have no application, would defeat the very purpose and object of section 40A(7) and render it nagatory." (2) M/s. Scientific Engg. House (P) Ltd. Vs. CIT dated 1st November, 1985 in regard to expenses for a designation of a technical knowledge in the from of drawings, designs and books etc. The Court has approved the view of Gujarat High Court in the case of Elecan Engg. (96 ITR 672 (Guj) and held that the depreciation is admissible on this regard. (3) Kartikeya Sarabhai Vs CIT dated 27th September, 1985, [23 Taxman 14w (SC)] in regard to capital gains on introduction of an asset by, partner as capital contribution into the partnership firm. The Court held it to be a transfer within the meaning of section 2(47) of the Act, but without there being ascertainable consideration passing on to the, partners and without there being any profit and gain arising to them on such transfer. The Court has however held that in such cases on facts it should be examined whether the transfer was a device or use to convert personal asset into money and evade tax on capital gains. (4) CIT Vs. Mother India Refrigeration Industries (P) Ltd. dated 14th August 1985, [23 Taxman 8 (SC)] regarding unabsorbed business loss of earlier years. The Court held that such business loss will not have precedence over current year's depreciation. (5) CIT Vs. J.H. Gotla. dated 29th August 1985 [23 Taxman 10 (SC)] regarding carry forward and set off of loss incurred by spouse or minor. The Court held that where Section 16(3) of the old Act (Section 64(1) of the 1961 Act) operates, profits or loss from a business of the spouse or minor child included in the total income of the assessee, should be treated as the profit or loss from a "business carried on by him" for the purposes of carrying forward and set off such loss u/s 24(2) of the old Act. (6) CIT Patiala Vs. M/s. Jagannath Pyarelal. dated 29th August 1985 [1985 Taxation 79 (Sec.III) 213 (SC)] regarding grant of registration to firm where application is defective. The Court held that where one of the partners had signed neither the partnership deed nor the application, the firm was not entitled for registration. Supreme Court inter-alia reaffirmed its decision reported at 36 ITR 194(SC) laying down the requisites for registration of the firm. These decisions may be brought to the notice of all the officers working in your charge for necessary action inter-alia for screening of the pending appeals and references with a view to withdraw them or for early fixation and disposal accordingly.