9911796707
TMI Blog1989 (4) TMI 12X X X X Extracts X X X X X X X X Extracts X X X X ..... tion of sugar and sale of molasses. The assessee appointed Messrs. Karam Chand Thapar and Bros. (P.) Ltd. as its secretaries. It was claimed earlier before the Income-tax Officer that K. C. Thapar and Co. (P.) Ltd. was supposed to look after the affairs of the assessee and its remuneration as secretary of the company was fixed at 71/2 of the net profit with minimum of Rs. 12.000 per annum. He held that it was not known whether K. C. Thapar and Bros. (P.) Ltd. were, at any time, paid maximum remuneration at 71/2 of the net profit. He further held that even a moiety of the minimum remuneration of Rs. 12,000 was forgone by Messrs K. C. Thapar and Bros. (P.) Ltd. in the preceding four assessment years and the net debit claimed by the appellant-company amounted to Rs. 6,000. It was submitted before him on behalf of the assessee that, due to change in the Companies Act with effect from April 1. 1970, resulting in the termination of the agreement for payment of remuneration to the secretaries, the assessee-company entered into two separate agreements on March 15, 1971, whereby the following remuneration was fixed as payable to Messrs. K. C. Thapar and Bros. (P.) Ltd. at the rates indicate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y in company's business, whether employed in Calcutta office or elsewhere, and all the expenses of manufacture and cost of all purchases for the company, and the company shall also bear and pay such proportion of salaries, wages, bonus, allowances, provident fund contributions, commission, etc., if any, of any staff and workers employed partly in connection with the business of the company and partly in connection with the business of other companies including secretaries, and/or firms, as also office expenses such as rents, telephone, electricity and conveyance expenses, etc., pertaining to such staff and workers likewise incurred, as the directors of the company may from time to time determine. The board may, from time to time, agree to pay either a certain fixed monthly amount or fixed percentage of salaries, allowances, provident fund contributions, fees, commission and bonus, etc., of the establishment employed partly in connection with the business of the company and partly for the business of the other companies including secretaries, and/or firms at Calcutta and elsewhere, and all other office incidentals pertaining thereto and the board may also, from time to time, vary th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. Karam Chand Thapar and Bros. (P.) Ltd. as a deductible expense under section 37(1) of the Income-tax Act, 1961, relating to the assessment year 1972-73 ?" At the hearing Mr. Bagchi, learned counsel appearing for the Revenue, has drawn our attention to the fact that the assessee did not carry on business in the relevant assessment year and, accordingly, the provision of section 37(1) of the Act could not be applied and the expenditure could not be allowed as claimed as business expenditure. On the other hand, Dr. Pal, learned counsel appearing for the assessee, has drawn our attention to the relevant orders of the Income-tax Officer and the Appellate Assistant Commissioner to highlight the fact that there is no dispute that the assessee incurred the expenditure even if there was no business which was not however urged before the Tribunal. The expenditure can be allowed if otherwise admissible under section 57(iii) of the Act. He has, therefore, submitted that this court has ample power to reframe the question to bring out the actual controversy between the parties. In our view, the contention of Dr. Pal has substance. The controversy before the authorities below and the Tri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ome payable to the employees employed solely in the company's business whether employed in Calcutta Office or elsewhere. The Revenue contended that the assessee was earning income from the lease rent. As a matter of fact, that the entire concern was leased out and that the assessee was earning income from such lease rent will be apparent from the records. Accordingly, the expenditure which is incurred for earning the income only can be allowed. The Income-tax Officer has recorded as follows : "Service charges of Rs. 29,250 included in office expenses. This was paid to M/s. Karam Chand Thapar and Bros. (P.) Ltd. for doing secretarial work, banking work, carrying on of liaison work in Delhi, etc., and services in the capacity of Registrars. It may be noted that the assessee has leased out its factory, etc. No direct business was carried out for which liaison work, etc., might be necessary. Besides, the assessee has got its own staff for whom salary, etc., has been debited. Hence, secretarial service rendered is illusory. In addition, services in the capacity of the registrar is also not clear. The entire expense is disallowed on the ground that no business purpose was served as a r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le one or that in fact any profit was earned.' It is indeed difficult to see how, after this observation of the court, there can be any scope for controversy in regard to the interpretation of section 57(iii)." The Supreme Court then proceeded to hold (at p. 523): "We fail to appreciate how expenditure which is otherwise a proper expenditure can cease to be such merely because there is no receipt of income. Whatever is a proper outgoing by way of expenditure must be debited irrespective of whether there is receipt of income or not. That is the plain requirement of proper accounting and the interpretation of section 57(iii) cannot be different. The deduction of the expenditure cannot, in the circumstances, be held to be conditional upon the making or earning of the income." In our view, a limited company, even if it does not carry on business, even if it derives income only from "other sources", has to maintain its establishment so long as it is in operation and its name is not struck off the register or until the company is dissolved which means cessation of all corporate activities of the company. Irrespective of the question whether the activity of earning rental income a ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
