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D. D. Italia Vs. Commissioner of Income-tax, Andhra Pradesh. - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtAndhra Pradesh High Court
Decided On
Case NumberCase Referred No. 20 of 1959 (R.A. No. 682 of 1958-59), March 1, 1961.
Reported in[1962]44ITR131(AP)
AppellantD. D. Italia
RespondentCommissioner of Income-tax, Andhra Pradesh.
Excerpt:
.....rent and delivering challan in the office of controller, tenant shall be deemed to have committed wilful default. - 2,500. the income-tax officer and the appellate commissioner as well as the income-tax appellate tribunal disallowed the assessees claim to deduct the said sum of rs......rise to these questions are these :the assessee was being assessed under the erstwhile hyderabad state income-tax act. the assessment year under that act is from 1st october of every year and ending with the following 30th september. the accounting year is the previous year beginning with 1st october and ending with 30the september. in the present case, the assessment year is 1950-51 under the indian income-tax act, 1922, i.e., from april 1, 1950, to march 31, 1951. the questions that arise in this case relate to the accounting year october 1, 1948, to september 30, 1949, for which the assessment year under the hyderabad income-tax act would be 1949-50. under section 30, clause (2), of the hyderabad income-tax act, the income-tax officer issued a notice to the assessee on november 30,.....
Judgment:

CHANDRASEKHARA SASTRY J. - The following questions are referred to the High Court under section 66 (1) of the Indian Income-tax Act :

'(1) Whether the assessment made upon the assessee on November 30, 1954, for the assessment year 1950-51 under the Indian Income-tax Act has been validly made ?

(2) Whether the sum of Rs. 2,500 paid to Baba Gaud is an item of capital expenditure within the meaning of section 10 (2) (xv) of the Indian Income-tax Act ?'

We shall take up for consideration the first question. The material facts which give rise to these questions are these :

The assessee was being assessed under the erstwhile Hyderabad State Income-tax Act. The assessment year under that Act is from 1st October of every year and ending with the following 30th September. The accounting year is the previous year beginning with 1st October and ending with 30the September. In the present case, the assessment year is 1950-51 under the Indian Income-tax Act, 1922, i.e., from April 1, 1950, to March 31, 1951. The questions that arise in this case relate to the accounting year October 1, 1948, to September 30, 1949, for which the assessment year under the Hyderabad Income-tax Act would be 1949-50. Under section 30, clause (2), of the Hyderabad Income-tax Act, the Income-tax Officer issued a notice to the assessee on November 30, 1949. The assessee submitted a return of April 1, 1950. The financial integration of the erstwhile Indian States with the Indian Union took place on April 1, 1950, and the Indian Income-tax Act became applicable to the erstwhile Indian States by reason of suitable amendment of the extent section of the Indian Income-tax Act, 1922. Section 13 of the Indian Finance Act, 1950, provided for repeals and saving in regard to a law relating to income-tax or super-tax that was in force in any Part B State other than Jammu and Kashmir. The Income-tax Officer, Hyderabad, first completed the assessment under section 23B of the Indian Act on July 12, 1951, and a provisional demand of tax was made. Thereafter, in due course, notices were served on the assessee under sections 22 (4) and 23 (2) of the Indian Act and were complied with by the assessee and the regular assessment was completed on November 30, 1954, under the Indian Act by the Income-tax Officer, 'F' Ward, Hyderabad. It is the validity of this assessment that was questioned before the Tribunal and the first question referred to the High Court relates to this.

The learned counsel for the assessee contended that the assessment in question, which was made under the Income-tax Act is illegal and without jurisdiction. It is argued that the accounting period is from October 1, 1948, to September 30, 1949, and that the return was submitted by the assessee on April 1, 1950, in pursuance of the notice issued under section 30 of the Hyderabad Income-tax Act. It is further contended that under section 46 (2) of the Hyderabad Income-tax Act, no order of assessment could be made after the expiry of three years from the end of the year in which the income, profits or gains were first assessable. It is pointed out that in this case, the assessment is beyond the period of three years prescribed by section 46 (2) of the Hyderabad Income-tax Act and that, therefore, the assessment is illegal, According to the learned counsel for the assessee, the year of account is from October 1, 1948, to September 30, 1949, and the Hyderabad Income-tax Act continued to be the law for the assessment year 1949-50 and the assessment could only be made under the Hyderabad Income-tax Act. Reliance for this contention is placed upon section 13 of the Indian Finance Act, 1950. Section 13, clause (1) of the Indian Finance Act, reads as follows :

'Repeals and savings. - (1) If immediately before the 1st day of April, 1950, there is in force in any Part B State other than Jammu and Kashmir or in Manipur, Tripura or Vindhay Pradesh or in the merged territory of Cooch-Behar any law relating to income-tax or super-tax or tax on profits of business, that law shall cease to have effect except for the purposes of the levy, assessment and collection of income-tax and super-tax in respect of any period not included in the previous year for the purposes of assessment under the Indian Income-tax Act, 1922 (XI of 1922), for the year ending on the 31st day of March, 1951, or, for any subsequent year,...'

A close reading of this section makes it clear that there remained no State laws of income-tax in operation in any Part B State in the year 1949-50. That means the income for the accounting year ending with March 31, 1949, has to be assessed to income-tax only under the Indian Income-tax Act. In the present case, admittedly, the accounting year ended only on September 30, 1949, i.e., after March 31, 1949. Therefore, the said income has to be assessed only under the Indian Income-tax Act. This is also what is held by the Supreme Court in Union of India v. Madan Gopal Kabra. At page 67 it was pointed out that :

'A close reading of that provision will show that it saves the operation of the State law only in respect of 1948-49 or any earlier period which is the period not included in the previous year (1949-50) for the purposes of assessment for the year 1950-51. In other words, there remained no State law of income-tax in operation in any Part B State in the year 1949-50.'

Reference may also be made to section 5 of the Part B States (Taxation Concessions) Order, 1950. Section 5, clause (1), of the said order is as follows :

'The income, profits and gains of any previous year ending after the 31st day of March, 1949, which is a previous year for the State assessment year 1949-50 shall be assessed under the Act for the year ending on the 31st day of March, 1951, if and only if, such income, profits and gains have not, before the appointed day, been assessed under the State law.'

This makes it clear that the income or profits for any previous year which ends after March 31, 1949, and which had to be assessed under the State law for the State assessment year 1949-50 shall be assessed under the Indian Income-tax Act for the year ending on the 31st day of March, 1951, if and only if such income, profits and gains have not before the appointed day been assessed under the Sated law. In the present case, the accounting year did not end by March 31, 1949. On the other hand the last date of the account year is September 30, 1949. Therefore, under section 5, clause (1) of the Part B States (Taxation Concessions) Order, 1950, the income for the account year ending with the 30th day of September, 1949, shall be assessed under the Indian Income-tax Act for the year ending on March 31, 1951, as admittedly it was not assessed under the Hyderabad Income-tax Act. We are, therefore, of the opinion that the assessment in this case is validly made under the Indian Income-tax Act.

It is also faintly suggested by the learned counsel for the assessee that section 5, clause (1), of the Part B States (Taxation Concessions) Order, 1950, is discriminatory and offends article 14 of the Constitution of India because it discriminates between the assessee whose income had been assessed under the State law before the appointed day and those whose income was not so assessed. We are unable to agree with this contention. In our opinion, there is no substance in this objection. We therefore answer the first question referred to the High Court against the assessee.

The second question referred to the High Court has to be answered in favour of the assessee. The assessee and one Baba Gaud offered tenders to the Excise Department for the Nizamabad liquor shop. The latters tender was accepted and that of the assessee was rejected. But thereafter the assessee took Baba Gauds tender in his own name by paying the latter a sum of Rs. 2,500. The Income-tax Officer and the Appellate Commissioner as well as the Income-tax Appellate Tribunal disallowed the assessees claim to deduct the said sum of Rs. 2,500 in computing the assessees business profits from the Nizamabad liquor hop on the ground that the expenditure was in the nature of capital expenditure. It is again contended before us by the learned counsel for the petitioner that it is a revenue expenditure and has to be allowed. A similar question arose in R. C. No. 17 of 1959. In that case, for the year 1951-52, Messrs. Pingal Venkatarama Reddy and Mamchand obtained a contract for the supply of gulmohwa flower from the Government. The assessee in that case took over the said contract of lease for the purpose of execution and paid Rs. 12,000 as compensation to the original contractors. The question arises whether this amount could be deducted under section 10 (2) (xv) of the Indian Income-tax Act in computing the profits of the assessee. After an exhaustive discussion of all the relevant decisions bearing on the point, this court held that the assessee was entitled to the deduction of the said amount of Rs. 12,000 as the expenditure was incurred to work the business with the object of making a profit. Here also, the assessee had to pay the amount of Rs. 2,500 to Baba Gaud in order to run the Nizamabad liquor shop. It is conceded by Sri C. Kondaiah, the learned counsel appearing for the Commissioner of Income-tax, Andhra Pradesh, Hyderabad, that the decision in R. C. No. 17 of 1959 governs this question in the present case and that it has to be answered in favour of the assessee. We therefore answer the second question referred to the High Court in favour of the assessee. No order as to costs of this reference.

Reference answered accordingly.


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