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Addl. Commissioner of Income-tax Delhi-i Vs. Delhi Cloth and General Mills Co. Ltd. - Court Judgment

LegalCrystal Citation
Subject Direct Taxation
CourtDelhi High Court
Decided On
Judge
Reported in[1983]144ITR275(Delhi)
ActsIncome Tax Act, 1961 - Sections 10, 17, 35(2), 36, 37, 37(2A), 40, 40(C) and 256(1); Finance Act, 1964
AppellantAddl. Commissioner of Income-tax Delhi-i
RespondentDelhi Cloth and General Mills Co. Ltd.
Cases ReferredC) and Karimtharuvi Tea Estate Ltd. v. State of Kerala
Excerpt:
direct taxation - income - sections 10, 17, 35 (2), 36, 37, 37 (2 a), 40, 40 (c) and 256 (1) of income tax act, 1961 and finance act, 1964 - whether tribunal right in holding that section 40 (c) (iii) as it stood amended by act of 1964 applicable in instant case and sum of rs. 64678 disallowed by income-tax officer on basis of section 40 (c) (iii) as inserted by act of 1963 was not correct - law in force in concerned assessment year to be applied unless otherwise provided expressly or by necessary implication - act of 1961 as amended on 01.04.1964 of financial year is to apply to assessment for that year even though subject of charge is income of previous year - effect of substitution of section 40 (c) (iii) was that section 40 (c) (iii) inserted by act of 1963 was not in force on first..........and rs. 29,772 incurred on foreign tours to technical officer, directors of the company in the assessment year 1962-63 and 1963-64 respectively represent an element of actual cost of machinery and plant, etc., to the assessed and as such depreciation and development rebate are admissible with reference to these amounts also? (iii) whether the expenses of rs. 8,072 incurred on the foreign tours of lala chart ram in the previous year relevant to the assessment year 1962-63 represent an element of actual cost of machinery, plant, etc., to the assessed and as such depreciation and development rebate are admissible with reference to this amount also? (iv) whether, on the facts and in the circumstances of the case, the expenditure incurred by the assessed in organizing football.....
Judgment:

S.S. Chadha, J.

1. In this reference under s. 256(1) of the I. T. Act, 1961, the following questions of law have been referred to this court for its opinion.

' (i) Whether, the expenses of Rs. 45,824 incurred on the foreign tours of Shri Chart Ram and some of the officers of the assessed-company represent an element of actual cost of machinery and plant, etc., to the assessed and as such depreciation and development rebate are admissible with reference to this amount also?

(ii) Whether the expenses of Rs. 23,399 and Rs. 29,772 incurred on foreign tours to technical officer, directors of the company in the assessment year 1962-63 and 1963-64 respectively represent an element of actual cost of machinery and plant, etc., to the assessed and as such depreciation and development rebate are admissible with reference to these amounts also?

(iii) Whether the expenses of Rs. 8,072 incurred on the foreign tours of Lala Chart Ram in the previous year relevant to the assessment year 1962-63 represent an element of actual cost of machinery, plant, etc., to the assessed and as such depreciation and development rebate are admissible with reference to this amount also?

(iv) whether, on the facts and in the circumstances of the case, the expenditure incurred by the assessed in organizing football tournaments was an allowable deduction under section 37 of the Income-tax Act, 1961?

(v) Whether the Tribunal was right in law in holding that the provision of section 40(c)(iii) as it stood amended by the Finance Act, 1964, were applicable in the instant case and the sum of Rs. 64,678 disallowed by the Income-tax Officer on the basis of provision of section 40(c) (iii), as inserted by the Fiance Act, 1963 was not correct ?'

2. It is not necessary to dilate on the facts found by the Income-tax Appellate Tribunal for answering questions Nos. 1 to 4 as they are admittedly covered by the opinion s given by this court for the earlier years. Similar questions with respect to the Delhi Cloth & General Mills Co. Ltd., the assessed, were the subject-matter of the decision in CIT v. Delhi cloth and General Mills Co. Ltd. : [1978]115ITR659(Delhi) and I. T. R. No. 77/73, Addl. CIT v. Delhi Cloth and General Mills Co. Ltd. decided on August 9, 1979 : [1983]144ITR280(Delhi) (Appx. I) (infra), and ITR 52/74, Addl. CIT v. Delhi Cloth and General Mills Coi. Ltd. decided in August 9, 1979 : [1983]144ITR283(Delhi) (Appx. II) (infra). The decision of this court in those cases will govern the decision of this case also for the opinion on questions Nos. 1 to 4.

3. The assessed is a limited company company doing business in textiles, Chemicals and many other things. The assessment year in question is the year 1964-65 and the corresponding previous year is the year ended June 30, 1963. Thus the accounting year of the assessed for the year in dispute is from July 1, 1962, to June 30, 1963. It included in it only four months from March 1, 1963, to June 30, 1963. As per the Fiance Act, 1963 (which inserted clause (iii) before the Expln. in s. 40(c)), the following amount shall not be deducted in computing the income chargeable under the head 'Profits and gains from business or profession.'

'40. (c) (iii) any expenditure which results directly or indirectly in the provision of any remuneration of benefit or amenity to an employee who is a citizen of Indian to the extent such expenditure exceeds the amount calculated at the rate of five thousand rupees per months for any period of his employment after the 28th day of February, 1963 :

Provided that in computing the aforesaid expenditure, any payments by way of gratuity or any sums co priced in the transferred balance of an employee participating in a recognised provident fund referred to in clause (vii) of sub-section (1) of section 17, or the amount of any compensation referred to in clause (i) or any payment referred to in clause (ii) of sub-section(3) of that section shall not be taken into account.'

4. The salary paid in excess of Rs. 5,000 to the employees by the assessed during these four months amounted to Rs. 64,678. The ITO disallowed this amount. On appeal, the AAC confirmed the disallowance. Before the Tribunal, it was contended on behalf of the assessed that for the relevant assessment year 1964-65 the entire accounting period was covered by the Fiance Act, 1964. As per the Fiance Act, 1964, the following amounts shall not be deducted in computing the income chargeable under the head 'Profits and gains from business or profession' and the provisions of s. 40(c) (iii) as inserted by the Finance Act, 1963, were substituted. It reads as follows :

' (iii) any expenditure incurred after the 29th day of February, 1964, which results directly or indirectly in the provision of any benefit or amenity or perquisite, whether convertible into many or not, to an employee (including any sum paid by the company in respect of any obligation which but for such payment would have been payable by such employee), to the extent such expenditure exceeds one-fifth of the amount of salary payable to the employee for any period of his employment after the aforesaid date :

Provided that in computing the aforesaid expenditure any payment by way of gratuity or the value of any travel concession or assistance referred to in clause (5) so section 10 or passage moneys or the value of any free or concessional passage referred to in sub-clause(i) of clause(6) of that section or any sum referred to in clause(vii) of sub-section (1) of section 17 or in clause (v) of sub-section(2) of that section or the amount of any compensation referred to in clause (i) or any payment referred to in clause (ii) of subsection(3) of that section or any payment referred to in clause (iv) or clause (v) of sub-section(1) of section 36 shall not be taken into account.'

5. On a construction of the provisions of the Finance ACt, 1963, and the Fiance Act, 1964, and the law applicable to an assessment which was ruled as in force on the 1st6 day of the assessment year in question, the Tribunal direct the ITo to make the disallowance on the basis of s. 40(c) (iii) which came into force with effect from April 1, 1964.

6. It is a cardinal principle of the tax law that the law to be applied is that in force in the assessment year unless otherwise provided expressly or by necessary implication : (CIT v. Isthmian Steamship Lines : [1951]20ITR572(SC) and Karimtharuvi Tea Estate Ltd. v. State of Kerala : [1966]60ITR262(SC) and Reliance Jute and industries Ltd. v. CIT : [1979]120ITR921(SC) . Though the subject-matter of the charge is the income of the previous year relevant to the assessment year, the law applicable to an assessment is the law that is in force in that particular assessment year, unless otherwise stated or implies. The I. T. ACt, as amended on the 1st April of a financial year, is to apply to the assessment for that year even though the subject of the charge is the income of the previous year. Section 40(c) (iii), which was in force on April 1, 1964, were the provisions which were substituted by s. 10 of the Fiance Act, 1964. BY force of s. 1 of the Finance Act, 1964, ss. 3 to 55 of that Act were deemed to have come into force on the 1st day of April 1964. The effect of the substitution of sub-clause (ii) in clause (c) of s. 40 of the I. T. ACt, 1961, was that sub-clause (iii) of clause (c) of s. 40 of the I. T. Act, 1961, inserted by the Fiance Act, 1963, was not in force on the first day of the assessment year in question. Section 40(c) (iii), as inserted by the Finance Act, 1963, no longer remained applicable as it was removed from the stature book and has the effect of an implied repeal. The stature has not stated or implied otherwise.

7. Certain provisions of the I. T. Act, 1961, have been brought to our notice such as s. 35(2) (i) and (ia), where two periods have been prescribed. Similarly, provisions have been made in s. 37(2A) prov. (a), where two periods have been prescribed. The Legislature could state if the amount as per the Finance Act, 1963, had not to be deducted in computing the income chargeable under the head 'profits and gains from business or profession' even by substitution of the provision of s. 40(c) (iii) by the Finance Act, 1964. Not having said so, the law applicable to an assessment is the law which was in force on the 1st day of the assessment year in question.

8. The reference is answered against the Revenue and in favor of the assessed with no order as to costs.


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