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PATNA HIGH COURT
V.Ramaswami and Raj Kishore Prasad JJ.
Sir Kameshwar Singh
Versus
Commissioner Of Income Tax
Miscellaneous Judicial Case No. 57 of 1955 ;
Decided On : APRIL 24, 1957
INCOME TAX - Deductions - Litigation expenses - Interest on bank overdrafts - Forest income - Remuneration received by assessee as Shebait of trust property - Whether allowable under Sec. 12 (2) of the Income-tax Act, 1922.
Fact of the Case:
The assessee claimed certain deductions under Sec.12 (2) of the Income-tax Act, 1922, including litigation expenses, interest on bank overdrafts, forest income, and remuneration received as Shebait of trust property. The Income-tax Officer disallowed these deductions, and the assessee appealed to the Appellate Assistant Commissioner and the Tribunal. The Tribunal referred five questions of law to the High Court for determination.
Finding of the Court:
The High Court held that the litigation expenses were not incurred solely for the purpose of making or earning income, and therefore were not deductible under Sec.12 (2). The interest on bank overdrafts was not deductible because it was not incurred for the purpose of earning income, except for the interest paid on overdrafts taken for call money for purchasing shares, which was also disallowed as it was capital expenditure. The forest income was not agricultural income and was therefore taxable. The remuneration received by the assessee as Shebait of trust property was not agricultural income and was therefore not exempt from tax.
Issues: 1. Whether litigation expenses of Rs. 10,000 in Lala Man Mohan Dass case should have been allowed as a deduction to the assessee? 2. (a). Whether interest paid on Bank overdrafts amounting to Rs. 46,633 or any portion, of the amount should have been allowed as a deduction to the assessee? 2. (b). Whether the claim with regard to the deduction of this amount was argued on behalf of the assessee before the Appellate Tribunal as stated in the affidavit filed today in this Court? 3. Whether in the facts and circumstances of the case the forest income of Kharagpur circle should have been treated as agricultural Income, and, hence, not taxable under the Income-tax Act? 4. Whether, in the facts and circumstances of the case, the forest receipts from the Bankura forests should have been held to be capital receipts, or, in any event, as agricultural income, and therefore not taxable? 5. Whether, in the facts and circumstances of the case the amount of Rs. 21,274 being the Amount paid to the assessee in his character of a Shebait of the Trust properties should have been held to be exempted from taxation on the ground that it is agricultural income?
Ratio Decidendi: 1. The assessee must show that the expenditure was incurred solely for the purpose of making or earning income, and not for any other purpose. 2. Interest on bank overdrafts is not deductible unless it is incurred for the purpose of earning income. 3. Forest income is not agricultural income and is therefore taxable. 4. Remuneration received by the assessee as Shebait of trust property is not agricultural income and is therefore not exempt from tax.
Final Decision: All the questions submitted by the Tribunal to this Court for determination under Sec. 66 (2) are accordingly answered in the negative against the assessee and in favour of the Department.
Raj Kishore Prasad, J.
1. Under Sec. 66 (2), Income-tax Act, 1922, on the requisition of the High Court, the Income-tax Appellate Tribunal has stated a case and referred it for the opinion of the High Court on the following questions of law:
"1. Whether, in the facts and circumstances of the case, the litigation expenses of Rs. 10,000 in Lala Man Mohan Dass case should have been allowed as a deduction to the assessee?
2. (a). Whether, in the facts and circumstances of the case, interest paid on Bank overdrafts amounting to Rs. 46,633 or any portion, of the amount should have been allowed as a deduction to the assessee?
2. (b). Whether the claim with regard to the deduction of this amount was argued on behalf of the assessee before the Appellate Tribunal as stated in the affidavit filed today in this Court?
3. Whether in the facts and circumstances of the case the forest income of Kharagpur circle should have been treated as agricultural Income, and, hence, not taxable under the Income-tax Act?
4. Whether, in the facts and circumstances of the case, the forest receipts from the Bankura forests should have been held to be capital receipts, or, in any event, as agricultural income, and therefore not taxable?
5. Whether, in the facts and circumstances of the case the amount of Rs. 21,274 being the Amount paid to the assessee in his character of a Shebait of the Trust properties should have been held to be exempted from taxation on the ground that it is agricultural income?"
2. The assessment year 1950-51, and, the relevant accounting year is 1356 Fasli, which corresponds to 19-9-1948 to 7-9-1949. The assessee was assessed under Sec.23 (3), of the Act by the Income-tax Officer, Special Circle, on 26-3-1951, on a total income of Rs. 15,73,941. On appeal, this assessment was confirmed by the Appellate Assistant Commissioner with certain modification on 28-5-1953. Against this order, the assessee as well as the Income-tax Department both appealed to the Tribunal, which disposed of both the appeals on 12-4-1954, allowing partly both the appeals. The assessee claimed certain deductions under Sec.12 (2) of the Act. The questions of law, which have been referred for decision of the High Court, relate to the deductions, which have been disallowed as claimed by the assessee.
3. On this reference, therefore, we are only concerned, if the assessee is entitled to deductions under S, 12 (2) of the Act on account of the different items mentioned in the questions formulated by the Tribunal.
4. In order to determine the correctness 6f the contentions raised by Mr. S.K. Mazumdar, on behalf of the assessee, it is necessary first to read Sec.12 (1) and (2) and to ascertain its scope. Sec.12 (1) and (2), as it stood before its amendment by the Finance Act, 1955, with the relevant clauses, was In the following terms :
"12. Other sources (1) The tax shall be payable by an assessee under the head Income from other sources in respect of income, profits and gains of every kind which may be included in his total income (If not included under any of the preceding heads).
(2) Such Income, profits and gains shall be computed after making allowance for any expenditure (not being in the nature of capital expenditure) incurred solely for the purpose of making or earning such Income, profits or gains provided that no allowance shall be made on account of (a) any personal expenses of the assessee, or
(b) * * * * *"
5. In computing the income under this head, deduction is to be made in respect of expenditure incurred solely for the purpose of earning such income, provided the expenditure is not in the nature of capital expenditure or personal expenses of the assessee. No allowance can be granted under this sub-section, unless four conditions are satisfied: (1) the expenditure must be solely incurred for the purpose of making or earning the Income, profits or gains; (2) it must not be in the nature of capital expenditure; (3) It must not be in the nature of p
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