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Commissioner of Income-tax Vs. Jabarmal Dugar - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtRajasthan High Court
Decided On
Case NumberD.B. Civil Income-tax Reference No. 5 of 1965
Judge
Reported in[1972]84ITR158(Raj); 1971(4)WLN284
ActsIncome Tax Act, 1961 - Sections 37(1) and 67(3)
AppellantCommissioner of Income-tax
RespondentJabarmal Dugar
Appellant Advocate S.K. Mal Lodha, Adv.
Respondent Advocate S.C. Bhandari and; Rajesh Balia, Advs.
Cases Referred(Bom.).and Jitmal Bhuramal v. Commissioner of Income
Excerpt:
income tax act, 1922 - section 10(2) and income tax act, 1961--sections 37(1) & 67 (3)--expenditure towards payment to accountant & correspondence clerk--whether it is admissible deduction.;the expenditure of the nature incurred by the assessee in the present case was admissible under section 10(2)(xv) of the act of 1922.;the legislature did not want to make sub-section (3) of section 67 exhaustive. if deduction could be claimed according to law under any other provision of the act that right would not be taken away merely by the provisions of sub-section (3) of section 67. hence, the natural rule of harmonious construction, which requires full effect to be given both to section 37. it and section 67(3) of the act will prevail and the assessee would be entitled to claim the..........included expenses for the business in the name of jabarmal dugar and also for the business of the calcutta firm. he noted that the assessee resided at sardar-shahr and managed the business of the calcutta firm from sardarstahr. the calcutta firm sent reports of daily cash balances from calcutta to sardar-shahr and from these a ledger was prepared by the assessee's accountant whose salary was debited in the account books. services of a part-time employee were utilised for attending to the correspondence whose salary was also debited in the set of books of accounts of m/s. sampatram budhmal. he, therefore, held that the expenses incurred on account of the salaries of the accountant and other employees were expenses incurred wholly and necessarily for the purposes of earning income from.....
Judgment:

Chhangani, J.

1. This is a reference by the Income-tax Appellate Tribunal (Delhi Bench 'B') referring the following question of law for answer by this court:

'Whether, in the facts and circumstances of the case, the payment of Rs. 2,440 to the accountant and the correspondence clerk who worked for the assessee in assisting him to issue directions, maintain accounts and carry on the business is an admissible deduction ?'

2. The material facts are as follows :

The assessee, Jabarmal Dugar, who is an individual, derives income from various sources. He has a proprietary business in money-lending at Sardarphahr in the name of self and is also a partner in the firm, M/s. Chaiskukh Sampatram, Calcutta, the share from which forms the major part of the assessee's income. He maintains two sets of accounts for his business. In one of the sets of account books in the name of M/s. Sampatram Budhmal, his gross receipts were only Rs. 337 and the business expenses were shown as Rs. 2,440. In connection with his claim for the deduction of the amount of Rs. 2,440, the Income-tax Officer, 'A' Ward, Bikaner, vide his order dated 10th January, 1963, allowed only a sum of Rs. 100 and disallowed the balance. On appeal by the assessee the Appellate Assistant Commissioner of Income-tax, Jodhpur, noted that the books of account in the name of M/s. Sampatram Budhmal were in the nature of 'head office set of books' and that the expenses shown therein included expenses for the business in the name of Jabarmal Dugar and also for the business of the Calcutta firm. He noted that the assessee resided at Sardar-shahr and managed the business of the Calcutta firm from Sardarstahr. The Calcutta firm sent reports of daily cash balances from Calcutta to Sardar-shahr and from these a ledger was prepared by the assessee's accountant whose salary was debited in the account books. Services of a part-time employee were utilised for attending to the correspondence whose salary was also debited in the set of books of accounts of M/s. Sampatram Budhmal. He, therefore, held that the expenses incurred on account of the salaries of the accountant and other employees were expenses incurred wholly and necessarily for the purposes of earning income from business including the share of profit from the Calcutta firm. The entire claim of Rs. 2,440 made by the assessee was, therefore, allowed, vide order dated April 8, 1963. Aggrieved by the order of the Appellate Assistant Commissioner, Jodhpur, the Income-tax Officer filed an appeal before the Appellate Tribunal, Delhi Bench ' B '. The Tribunal held that the assessee's income from share of profit in the firm was his income from business carried on byhim and that the salaries paid to the accountant and the correspondence clerk were expended wholly and exclusively for the purpose of the business and were admissible deductions under Section 37(1) of the Income-tax Act. The Appellate Tribunal, therefore, dismissed the appeal. On an application by the Commissioner of Income-tax, the Tribunal drew up the statement of the case and referred the above-quoted question of law for answer.

We have heard Mr. S.K. Mal Lodha for the department and Shri S.C. Bhandari for the assessee.

3. We may at once observe that under the Income-tax Act of 1922 . (hereinafter referred to as ' the Act of 1922 '), it was settled by a number of decisions that the expenditure of the nature incurred by the assessee in the present case was admissible under Section 10(2)(xv) of the Act of 1922. We may notice only a few important decisions in this connection.

4. In Commissioner of Income-tax v. Ramnik Lal Kothari, [1964] 54 I.T.R. 232, 235, 236 (Pat.) a controversy was raised on behalf of the revenue that the profits derived by an assessee from the partnership business should be treated as having become net profits and that there should be no further deductions from the profits on account of the expenditure incurred by the partner. In repelling the contention of the revenue, the Patna High Court observed as follows:

' It cannot be doubted that the income earned by the assessee from his share of the partnership business is income derived from business and so falls within the ambit of Section 10(1) of the Income-tax Act. It is also manifest that the profits and gains contemplated by the legislature under Section 10 are the true profits and gains, and ordinarily the true profits and gains of the assessee must be ascertained from the point of view of commercial expediency and commercial accounting. If, therefore, the assessee was able to establish in this case that the expenditure claimed by him was incurred as a matter of commercial expediency and for the purpose of earning profits from* the partnership business, the assessee would be entitled to claim the deduction of the amount under Section 10(2)(xv) of the Income-tax Act or under the general principle laid down by the Privy Council in Commissioner of Income-tax v. S.M. Chitnavis, [1932] 32 Comp. Cas. 464; L.R. 59 I.A. 290 (P.C.).

5. The following three cases were also noticed by the court in support of its conclusions: Shantikumar Narottam Morarji v. Commissioner of Income-tax, [1955] 27 I.T.R. 69 (Bom.), Commissioner of Income-tax v. New Digvijaysinhji Tin Factory, [1959] 36 I.T.R. 72 (Bom.).and Jitmal Bhuramal v. Commissioner of Income-tax, [1959] 37 I.T.R. 528 (Pat.).Indeed, counsel for the department did not join in any serious controversy as regards the position of law under the Act of 1922, and we, therefore,consider it unnecessary to notice the other cases. The department's contention, however, is that the position of law must be deemed to have been changed under the new Act and in this connection reliance was placed upon the language of Section 67(3) of the Income-tax Act, 1961, as :

' Any interest paid by a partner on capital borrowed by him for the purposes of investment in the firm shall, in computing his income chargeable under the head 'Profits and gains of business or profession' in respect of his share in the income of the firm, be deducted from the share.'

6. A similar controversy arose in the Patna High Court in Commissioner of Income-tax v. Atma Ram Modi, [1969] 71 I.T.R. 199. 202 (Pat.). In deciding the controversy against the department the court observed as follows :

' In our opinion, notwithstanding the changes made by the new Act, the main principle enunciated therein would apply with equal force.'

7. After quoting from Kanga's Law of Income-tax, fifth edition, page 498 and tracing the history of legislation, the court observed that:

' The legislature did not want to make Sub-section (3) of Section 67 exhaustive. If deduction could be claimed according to law under any other provision of the Act, that right would not be taken away merely by the provisions of Section (3) of Section 67. Hence, the natural rule of harmonious construction, which requires full effect to be given both to Section 37(1) and Section 67(3) of the Act will prevail and the assessee would be entitled to claim the deduction permitted by Sub-section (1) of Section 37, provided the facts necessary for such claim have been stated and found in his favour.'

8. We are in complete agreement with the law expounded in the above case and have not been impressed by the arguments of the learned counsel for the department for taking a contrary view.

9. In this view of the law, the question referred to us deserves to be answered in the affirmative and we answer it accordingly.


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