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TMI Blog1961 (3) TMI 101X X X X Extracts X X X X X X X X Extracts X X X X ..... risdiction of the District Board of Meerut during the previous year relating to the assessment year 1950-51. The company earned profits and during the previous year in question had to pay an amount of ₹ 2,000 as District Board tax. The assessee claimed that this amount of ₹ 2,000 should be deducted as an admissible expenditure under section 10(2)(xv) of the Income-tax Act but this objection was rejected by the Income-tax Officer, the Appellate Assistant Commissioner as well as the Income-tax Appellate Tribunal. It is this decision which gave rise to the first question. During the same previous year, the assessee contributed a sum of ₹ 800 to a school where the children of the assessee company's workers used to read and, consequently, the assessee claimed that this sum was also a deductible expenditure under section 10(2)(xv) of the Income-tax Act. The Income-tax Appellate Tribunal held that the school was not maintained by the assessee company and the contribution was purely in the nature of charity and, consequently, rejected the claim of the assessee in respect of this deduction. On these facts, the assessee sought reference to this court of the second qu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m. The point raised was that the assessee had spent a sum of ₹ 1,98,000 to replace a part of the machinery which was sold for the sum of ₹ 46,257 and consequently this sum of ₹ 1,98,000 was admissible expenditure under section 10(2)(xv) of the Income-tax Act. The Tribunal held that this point was not raised either before the Income-tax Officer or before the Appellate Assistant Commissioner and consequently the Tribunal refused to entertain this new ground. It is on these facts that the Tribunal framed the third question mentioned above at the request of the assessee. It has appeared to us that the third question as framed by the Tribunal does not bring out properly the controversy which actually arose at the time of the hearing of the appeal before the Tribunal. It was at no stage contended even on behalf of the department before the Tribunal that the Tribunal had no power to refuse to entertain a ground of appeal if that ground was not raised before the Income-tax Officer and before the Appellate Assistant Commissioner. In fact the appellate order of the Tribunal from which we have mentioned the facts above shows that the Tribunal was itself clearly of the opinio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... question would arise of its not being allowed as a deductible expenditure on the ground of being dependent on income by applying the provisions of section 10(4) of the Income- tax Act. In answering this question, therefore, we consider that we are entitled to proceed on the basis that the Income-tax Appellate Tribunal itself came to the finding that this amount of ₹ 2,000 paid as tax to the District Board was an expenditure laid out or expended wholly and exclusively for the purpose of the business of the assessee company and was not an allowance of the nature described in any of the clauses (i) to (xiv) of section 10(2) of the Income-tax Act. We have mentioned this aspect as, during the course of arguments on this question of law, Mr. Gopal Behari, learned counsel of the department, urged that we should examine this question in detail and arrive at a finding that this sum of ₹ 2,000 paid as tax to the District Board was not an expenditure laid out or expended wholly and exclusively for the purpose of the business of the assessee. In view of the finding recorded by the Tribunal we are of the opinion that the question in this form does not arise out of the appellate ord ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ned as estimated income with some clauses indicating what is not to be included in the taxable income. The word income used by the Tribunal in the appellate order must, therefore, be interpreted as meaning estimated income which estimated income must have been worked out by the District Board in accordance with the provisions of the District Boards Act in order to assess the tax payable by the assessee company. We have looked at the District Boards Act and the rules framed thereunder and we have not been able to find any rules or provisions laid down for determining the estimated income. In fact, the rules are silent altogether as to how the income is to be estimated. There is a provision that a list of assessees with the amount of tax assessed under section 114 of the District Boards Act is to be prepared and objections are to be invited against such list before finalising the amount of tax payable but it is nowhere laid out down in the Act or the rules that when such objections are filed it would be necessary of the assessing authority to determine the actual income of the taxpayer. The income, therefore, on which tax is payable under the District Boards Act is income arrived ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hool for the education of the children of the company's workers as a part of the conditions of service of the workers. In all these circumstances, the Tribunal, in our opinion, was quite right in coming to the view that the contribution was purely in the nature of charity as it was an ex gratia payment being made by the company to assist a school without any obligations towards the school or towards its workers. This amount was, therefore, rightly disallowed, and the second question must, therefore, be answered against the assessee in the affirmative. So far as the third question is concerned the only facts mentioned by the Tribunal in the appellate order are that the point raised before the Tribunal was not raised either before the Income-tax Officer or before the Appellate Assistant Commissioner and it was on this ground that the Tribunal refused to entertain this new ground. It has been urged by learned counsel for the assessee that in refusing to entertain this ground the Tribunal acted arbitrarily and did not exercise its discretion in a judicial manner. This argument was urged on the assumption that the question which was being sought to be raised before the Tribunal w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see whether the act actually done is one which in substance is a replacement of defective parts or a replacement of the entirety or a substantial part of the subject-matter. These views expressed by Satyanarayana Rao J. make it clear that replacements can be of two different types. There can be replacements which amount to repair and there can also be replacements which cannot be treated as repair and the expenditure on them would not be deductible under section 10(2)(xv) of the Income-tax Act. He also laid down the test. We may say with respect that we agree with the test laid down by Satyanarayana Rao J. in his judgment and, consequently, in our opinion the assessee could have succeeded before the Tribunal only if facts were found to show that, after applying the test, the replacement by the assessee was of the nature which would amount to repair. For this purpose, it would have been necessary for the Tribunal to go into questions of fact as to whether the replacement of the old quadruple was only a replacement of a defective part or whether it amounted to a replacement of the entirety or at least a substantial part of the machinery in question. For investigating the nature ..... X X X X Extracts X X X X X X X X Extracts X X X X
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