Seth Banarsi Dass Gupta Vs. Commissioner of Income-tax, Delhi
EmailAppeal: Civil Appeal Nos. 850 of 1973 (From the Judgment and Order dated 3.9.1970 of the Allahabad High Court in Civil Miscellaneous (ITR) No.461 of 1961)
Petitioner: Seth Banarsi Dass Gupta
Respondent: Commissioner of Income-tax, Delhi
Apeal: Civil Appeal Nos. 850 of 1973 (From the Judgment and Order dated 3.9.1970 of the Allahabad High Court in Civil Miscellaneous (ITR) No.461 of 1961)
Judges: RANGANATH MISRA & G.L.OZA, JJ.
Date of Judgment: Apr 29, 1987
Appearances:
Mr. Raja Ram Agarwal Senior Advocate and Mrs. Rani Chhabra, Advocates with him for the Appellants.
Mr. B.B. Ahuja and Ms. A. Subhashini Advocates with him for the Respondents.
Head Note:
INDIAN INCOME TAX ACT, 1922:
Sections 10(2)(vi), 24 and 66(1)- Share in factory leased out – Lease money received was revenue recipt and liable to tax – Claim of depreciation on 1/6th share -Benefit of Section 10(2)(vi) would be available where the assessee is the owner of the property – It is not admissible in respect of a fractional claim.
Sections 10(2)(vi), 24 and 66(1)- Share in factory leased out – Lease money received was revenue recipt and liable to tax – Claim of depreciation on 1/6th share -Benefit of Section 10(2)(vi) would be available where the assessee is the owner of the property – It is not admissible in respect of a fractional claim.
JUDGEMENT:
RANGANATH MISRA, J.
C.A.No.850/73
1. This appeal is by certificate and is directed against the judgment of the High Court of Allahabad. Assessee and five of his brothers constituted a Hindu Joint Family. The relevant assess-ment year is 1953-54 corresponding to the accounting period ending on 30th June, 1952. The Joint Family which owned inter alia a sugar factory at Bijnore. In 1930 there was partition in the family and the members of the erstwhile Joint Family consti-tuted themselves into a partnership firm which took over the sugar factory and operated the same. In the year 1944, Sheo Prasad, one of the brothers who was a partner of the firm insti-tuted a suit in the Lahore High Court for dissolution of the firm. Partition of the country followed and after the parties shifted over to India a fresh suit was instituted at Bijnore for purposes of partition. The properties were put in charge of a receiver appointed by the Court. So far as the sugar factory is concerned, the arrangement was that at five yearly rest an auc-tion was to be held confined to the partners and the highest bidder would be given lease to operate the factory for that period under the receiver. On 16th July, 1948, Sheo Prasad trans-ferred his 1/6th share to Banarsi Dass at a stated valuation of Rs.4,50,000/-. On 3rd May, 1950, another brother, Devi Chand, leased out his 1/6th share to Banarsi Dass on an annual payment of Rs.50,000/-. On 13th July, 1950, yet another broth-er. Kanshi Ram, similarly leased out his 1/6th share to Banarsi Dass for a similar sum. In 1951, Kanshi Ram sued for cancella-tion of the lease. On 6th April, 1954, the dispute was compro-mised and the lease was terminated. Kanshi Ram undertook to pay to Banarsi Dass at the rate of Rs. 16,000/- for the first three years and at the rate of Rs.10,000/- for the subsequent two years. Devi Chand’s 1/6th share was also returned on mutual arrangement and he agreed to pay a sum of Rs.39,000/- and odd annually to Banarsi Dass for the lease period. During the assessment proceedings. the nature of these receipts came to be debated_ the assessee maintained that these were in the nature of capital receipt in lieu of the lease hold interest and the Income-tax Officer maintained that those were revenue receipts. In due course, the Tribunal ultimately upheld the view of the Revenue.
2. One more question that arose was the admissibility of a claim of expenditure being payment of interest on a loan taken for purchase of shares in the sugar factory. The Income-tax Officer had allowed the claim of Rs. 75,211/-. The Appellate Assistant Commissioner gave notice to the assessee and disal-lowed the same. The Appellate Tribunal reversed the finding of the Appellate Assistant Commissioner in regard to the admis-sibility of the claim. Thus the assessee as also the Revenue applied to the Tribunal to refer the case to the High Court. As far as relevant, the following questions were referred for the opinion of the High Court under section 66(1 ) of the Act at the instance of the assessee.
1. Whether on the facts and in the circumstances of the case, the sums of Rs. 16,000/- and Rs.39,262/- received from Kanshi Ram and Devi Chand respectively were assessable as income of the assessee?
2.Whether on the facts and in the circumstances of the case, depreciation is allowable on the 1/6th share in S.B. Sugar Mills, Bijnore which the assessee had acquired from Seth Shiv Prasad?
So far as the first question is concerned, the High Court re-ferred to the arrangement entered into by the parties as also the terms of compromise and referred to certain decisions and came to the conclusion that the sum of Rs. 16,000/- received as a part of the total sum of Rs.68,000/- constituted an assessable re-ceipt. On the same reasoning, the High Court held that the amount of Rs.39,262/- received from Devi Chand was also liable to tax.
3. So far as the other question is concerned, the High Court held:
“The question, however, remains whether the assessee is enti-tled to claim depreciation on the ground that it has acquired l/6th share in the S.B. Sugar Mills. It is to be noted that the assessee does not claim to be full owner of the proper-ty. All that the assessee claims is 1/6th share in S.B. Sugar Mills.”
“The assessee claims allowance under clause (vi) of sub-sec-tion (2) of section 10 of the Indian Income-tax Act of 1922. Clause (vi) is:
‘In respect of depreciation of such buildings. machinery. plant or furniture being the property of the assessee…..”
“In order to qualify for an allowance under clause (vi), the assessee has to make out that the building, machinery, plant or furniture is the property of the assessee. Mr. Shanti Bhushan appearing for the assessee urged that clause (vi) is attracted even where an assessee owns a fractional share in the machinery. On the other hand, Mr. Brij Lal Gupta appearing for the Department urged that ownership of a frac-tional share in machinery does not attract clause (vi). The point is not free from difficulty.”
The High Court ultimately came to hold:-
“In order to qualify for an allowance under clause (vi), the claimant must make out that the machinery is the property of the assessee. That test is not satisfied by the present assessee. The assessee does not claim to be the full owner of the machinery in question. All that is claimed for the asses-see is 1/6th share in the machinery. Such a fractional share will not suffice for granting an allowance for depre-ciation under section 10(2)(vi) of the Act.”
4. We have heard learned counsel for the assessee-appell-ant at length. He has referred to several authorities in support of the assessee’s stand of admissibility of the claim on both scores. According to him, the proper test to be adopted should have been to find out whether the arrangement constituted an apparatus to earn profit. whether the arrangement was one in course of business activity, and whether what was received constituted a part of the circulating capital or was a part of the fixed asset. We have considered the submissions of the learned counsel for the appellant but are not in a position to accept the same. There is hardly scope to doubt that the bene-fit of section 10(2)(vi) of the Act would be admissible only where the assessee is the owner of the property. It too is not admissible in respect of a fractional claim. Similarly, we are of the view, in agreement with the High Court. that the amounts which the assessee received under the compromise or by amicable arrangement was in the nature of profits to be received by the assessee for the interest held in the business and, therefore. constituted taxable income. No other point was canvassed before us. This appeal has to fail and is hereby dismissed. Parties are directed to hear their own costs through-out.
C.A.No.233 of 1976
5. This appeal between the parties is also by certificate granted by the Allahabad High Court and relates to the assessment year 1955-56 for the accounting period ending on 30th June, 1954. Leave has been confined to two questions_as would appear from the order granting the certificate, namely, as to whether one of the instalments received by the assessee out of the said amount of Rs.68,000/-, as referred to above, in respect of an earlier assessment year constituted a taxable receipt. The second question relates to acquisition of the 1/6th share under a deed of exchange from Devi Chand under the exchange deed dated 16th July, 1948, which indicated that the valuation of that interest was shown to be Rs.4,50,000/- and depreciation was claimed in regard to it. Both the questions raised here are covered by our aforesaid judgment. The appeal of the assessee has therefore to fail. The appeal is accordingly dismissed. Parties are directed to bear their own costs.
C.A.No.1001 of 1975
6. The relevant assessment year in this case is 1954-55 corre-sponding to the accounting period ending June 30, 1953. Three questions survive for consideration: One relating to the receipt of Rs.16,000/- and Rs.42,957/- in the same manner as already indicated. and the other depreciation in regard to the 1/6th share said to have been valued at Rs.4,50,000/-. Both the ques-tions have to be answered against the assessee for the reasons already indicated. In this case, there is a third question which is relevant, namely, whether in the facts and circumstances of the case. the unabsorbed carried forward loss of Rs.78,084/- was liable to be set off against the share of the rent re-ceived by the assessee from the Receiver. Dealing with this question, the High court observed:-
“During the previous year relevant to the assessment year 1953-54, the assessee had suffered a loss in sugar business. After setting off the loss against other heads of income there remained an unabsorbed loss of Rs.78,084. In the assessment year in dispute the assessee claimed that the unabsorbed loss of the preceding year should be brought forward and set off against its share in lease money received from the Receiver in respect of S.B. Sugar Mills. This claim of the assessee has been disallowed and the question arises as to whether the assessee was entitled to carry forward and set off the loss as claimed by it.”
The High Court referred to section 24 of the Income-tax Act of 1922 and indicated that two conditions had to be fulfilled before the claim of set off of carried forward loss could be admitted, firstly, the income against which the loss has to be set off should be income from business and secondly, the busi-ness should be same in which the loss was suffered. The High Court referred to certain decisions including the one of this Court in 26 ITR 765 and ultimately negated the claim of the assessee by saying that the question would not arise because the letting out of the sugar mill was not the business of the assessee. In fact the receiver was appointed for dissolution of the firm and the main reason. as found by the High Court, for allowing the sugar factory to work was to dispose it of as a running mill so that proper price would be fetched. Having heard learned counsel for the parties, we are satisfied that there is no merit in the assessee’s stand and the same has got to be dismissed. The appeal is accordingly dismissed. Parties are directed to bear their own costs throughout.
C. A. No. 941 of 1975
7. This appeal is by certificate from the judgment of the Allahabad High Court. The assessee is the sugar mill which during the relevant assessment year 1960-61 corresponding to the accounting period ending 30th June, 1959, was in the hands of a Court Receiver. The sugar mill was being assessed as an Asso-ciation of Persons. Banarsi Dass. a partner, had 1/6th share therein. He had acquired under a deed of exchange dated 16th July, 1948 1/6th share of Sheo Prasad in exchange of shares held by Banarsi Dass in Lord Krishna Sugar Mills valued at Rs.4,50,000/-. In this assessment year, the receiver claimed that for the purposes of computing the depreciation allow-ance, the written down value of the business assets be enhanced so as to reflect the sum of Rs.4,50,000/- in place of 1/6th share representing the share of Sheo Prasad. Similar claim had been raised by Banarsi Dass in his own assessment. The Income-tax Officer rejected the claim and such rejection has been upheld throughout. We have already turned down the claim of Banarsi Dass. This claim has, therefore, to be rejected. We may addi-tionally point out that under the scheme of the Act, it is the assessee who alone is entitled to maintain such claim of depre-ciation and it would indeed be difficult, within the framework of the scheme contained in the statute, to maintain a separate value of the part of the asset to work out depreciation. The book-value as shown must be applicable to the entire assets of the firm including the 1/6th share which Sheo Prasad had given to Banarsi Dass. The claim has rightly been rejected in the forums below including the High Court. The appeal has no merit and is dismissed. Parties will bear their own costs.
Appeals dismissed.
C.A.No.850/73
1. This appeal is by certificate and is directed against the judgment of the High Court of Allahabad. Assessee and five of his brothers constituted a Hindu Joint Family. The relevant assess-ment year is 1953-54 corresponding to the accounting period ending on 30th June, 1952. The Joint Family which owned inter alia a sugar factory at Bijnore. In 1930 there was partition in the family and the members of the erstwhile Joint Family consti-tuted themselves into a partnership firm which took over the sugar factory and operated the same. In the year 1944, Sheo Prasad, one of the brothers who was a partner of the firm insti-tuted a suit in the Lahore High Court for dissolution of the firm. Partition of the country followed and after the parties shifted over to India a fresh suit was instituted at Bijnore for purposes of partition. The properties were put in charge of a receiver appointed by the Court. So far as the sugar factory is concerned, the arrangement was that at five yearly rest an auc-tion was to be held confined to the partners and the highest bidder would be given lease to operate the factory for that period under the receiver. On 16th July, 1948, Sheo Prasad trans-ferred his 1/6th share to Banarsi Dass at a stated valuation of Rs.4,50,000/-. On 3rd May, 1950, another brother, Devi Chand, leased out his 1/6th share to Banarsi Dass on an annual payment of Rs.50,000/-. On 13th July, 1950, yet another broth-er. Kanshi Ram, similarly leased out his 1/6th share to Banarsi Dass for a similar sum. In 1951, Kanshi Ram sued for cancella-tion of the lease. On 6th April, 1954, the dispute was compro-mised and the lease was terminated. Kanshi Ram undertook to pay to Banarsi Dass at the rate of Rs. 16,000/- for the first three years and at the rate of Rs.10,000/- for the subsequent two years. Devi Chand’s 1/6th share was also returned on mutual arrangement and he agreed to pay a sum of Rs.39,000/- and odd annually to Banarsi Dass for the lease period. During the assessment proceedings. the nature of these receipts came to be debated_ the assessee maintained that these were in the nature of capital receipt in lieu of the lease hold interest and the Income-tax Officer maintained that those were revenue receipts. In due course, the Tribunal ultimately upheld the view of the Revenue.
2. One more question that arose was the admissibility of a claim of expenditure being payment of interest on a loan taken for purchase of shares in the sugar factory. The Income-tax Officer had allowed the claim of Rs. 75,211/-. The Appellate Assistant Commissioner gave notice to the assessee and disal-lowed the same. The Appellate Tribunal reversed the finding of the Appellate Assistant Commissioner in regard to the admis-sibility of the claim. Thus the assessee as also the Revenue applied to the Tribunal to refer the case to the High Court. As far as relevant, the following questions were referred for the opinion of the High Court under section 66(1 ) of the Act at the instance of the assessee.
1. Whether on the facts and in the circumstances of the case, the sums of Rs. 16,000/- and Rs.39,262/- received from Kanshi Ram and Devi Chand respectively were assessable as income of the assessee?
2.Whether on the facts and in the circumstances of the case, depreciation is allowable on the 1/6th share in S.B. Sugar Mills, Bijnore which the assessee had acquired from Seth Shiv Prasad?
So far as the first question is concerned, the High Court re-ferred to the arrangement entered into by the parties as also the terms of compromise and referred to certain decisions and came to the conclusion that the sum of Rs. 16,000/- received as a part of the total sum of Rs.68,000/- constituted an assessable re-ceipt. On the same reasoning, the High Court held that the amount of Rs.39,262/- received from Devi Chand was also liable to tax.
3. So far as the other question is concerned, the High Court held:
“The question, however, remains whether the assessee is enti-tled to claim depreciation on the ground that it has acquired l/6th share in the S.B. Sugar Mills. It is to be noted that the assessee does not claim to be full owner of the proper-ty. All that the assessee claims is 1/6th share in S.B. Sugar Mills.”
“The assessee claims allowance under clause (vi) of sub-sec-tion (2) of section 10 of the Indian Income-tax Act of 1922. Clause (vi) is:
‘In respect of depreciation of such buildings. machinery. plant or furniture being the property of the assessee…..”
“In order to qualify for an allowance under clause (vi), the assessee has to make out that the building, machinery, plant or furniture is the property of the assessee. Mr. Shanti Bhushan appearing for the assessee urged that clause (vi) is attracted even where an assessee owns a fractional share in the machinery. On the other hand, Mr. Brij Lal Gupta appearing for the Department urged that ownership of a frac-tional share in machinery does not attract clause (vi). The point is not free from difficulty.”
The High Court ultimately came to hold:-
“In order to qualify for an allowance under clause (vi), the claimant must make out that the machinery is the property of the assessee. That test is not satisfied by the present assessee. The assessee does not claim to be the full owner of the machinery in question. All that is claimed for the asses-see is 1/6th share in the machinery. Such a fractional share will not suffice for granting an allowance for depre-ciation under section 10(2)(vi) of the Act.”
4. We have heard learned counsel for the assessee-appell-ant at length. He has referred to several authorities in support of the assessee’s stand of admissibility of the claim on both scores. According to him, the proper test to be adopted should have been to find out whether the arrangement constituted an apparatus to earn profit. whether the arrangement was one in course of business activity, and whether what was received constituted a part of the circulating capital or was a part of the fixed asset. We have considered the submissions of the learned counsel for the appellant but are not in a position to accept the same. There is hardly scope to doubt that the bene-fit of section 10(2)(vi) of the Act would be admissible only where the assessee is the owner of the property. It too is not admissible in respect of a fractional claim. Similarly, we are of the view, in agreement with the High Court. that the amounts which the assessee received under the compromise or by amicable arrangement was in the nature of profits to be received by the assessee for the interest held in the business and, therefore. constituted taxable income. No other point was canvassed before us. This appeal has to fail and is hereby dismissed. Parties are directed to hear their own costs through-out.
C.A.No.233 of 1976
5. This appeal between the parties is also by certificate granted by the Allahabad High Court and relates to the assessment year 1955-56 for the accounting period ending on 30th June, 1954. Leave has been confined to two questions_as would appear from the order granting the certificate, namely, as to whether one of the instalments received by the assessee out of the said amount of Rs.68,000/-, as referred to above, in respect of an earlier assessment year constituted a taxable receipt. The second question relates to acquisition of the 1/6th share under a deed of exchange from Devi Chand under the exchange deed dated 16th July, 1948, which indicated that the valuation of that interest was shown to be Rs.4,50,000/- and depreciation was claimed in regard to it. Both the questions raised here are covered by our aforesaid judgment. The appeal of the assessee has therefore to fail. The appeal is accordingly dismissed. Parties are directed to bear their own costs.
C.A.No.1001 of 1975
6. The relevant assessment year in this case is 1954-55 corre-sponding to the accounting period ending June 30, 1953. Three questions survive for consideration: One relating to the receipt of Rs.16,000/- and Rs.42,957/- in the same manner as already indicated. and the other depreciation in regard to the 1/6th share said to have been valued at Rs.4,50,000/-. Both the ques-tions have to be answered against the assessee for the reasons already indicated. In this case, there is a third question which is relevant, namely, whether in the facts and circumstances of the case. the unabsorbed carried forward loss of Rs.78,084/- was liable to be set off against the share of the rent re-ceived by the assessee from the Receiver. Dealing with this question, the High court observed:-
“During the previous year relevant to the assessment year 1953-54, the assessee had suffered a loss in sugar business. After setting off the loss against other heads of income there remained an unabsorbed loss of Rs.78,084. In the assessment year in dispute the assessee claimed that the unabsorbed loss of the preceding year should be brought forward and set off against its share in lease money received from the Receiver in respect of S.B. Sugar Mills. This claim of the assessee has been disallowed and the question arises as to whether the assessee was entitled to carry forward and set off the loss as claimed by it.”
The High Court referred to section 24 of the Income-tax Act of 1922 and indicated that two conditions had to be fulfilled before the claim of set off of carried forward loss could be admitted, firstly, the income against which the loss has to be set off should be income from business and secondly, the busi-ness should be same in which the loss was suffered. The High Court referred to certain decisions including the one of this Court in 26 ITR 765 and ultimately negated the claim of the assessee by saying that the question would not arise because the letting out of the sugar mill was not the business of the assessee. In fact the receiver was appointed for dissolution of the firm and the main reason. as found by the High Court, for allowing the sugar factory to work was to dispose it of as a running mill so that proper price would be fetched. Having heard learned counsel for the parties, we are satisfied that there is no merit in the assessee’s stand and the same has got to be dismissed. The appeal is accordingly dismissed. Parties are directed to bear their own costs throughout.
C. A. No. 941 of 1975
7. This appeal is by certificate from the judgment of the Allahabad High Court. The assessee is the sugar mill which during the relevant assessment year 1960-61 corresponding to the accounting period ending 30th June, 1959, was in the hands of a Court Receiver. The sugar mill was being assessed as an Asso-ciation of Persons. Banarsi Dass. a partner, had 1/6th share therein. He had acquired under a deed of exchange dated 16th July, 1948 1/6th share of Sheo Prasad in exchange of shares held by Banarsi Dass in Lord Krishna Sugar Mills valued at Rs.4,50,000/-. In this assessment year, the receiver claimed that for the purposes of computing the depreciation allow-ance, the written down value of the business assets be enhanced so as to reflect the sum of Rs.4,50,000/- in place of 1/6th share representing the share of Sheo Prasad. Similar claim had been raised by Banarsi Dass in his own assessment. The Income-tax Officer rejected the claim and such rejection has been upheld throughout. We have already turned down the claim of Banarsi Dass. This claim has, therefore, to be rejected. We may addi-tionally point out that under the scheme of the Act, it is the assessee who alone is entitled to maintain such claim of depre-ciation and it would indeed be difficult, within the framework of the scheme contained in the statute, to maintain a separate value of the part of the asset to work out depreciation. The book-value as shown must be applicable to the entire assets of the firm including the 1/6th share which Sheo Prasad had given to Banarsi Dass. The claim has rightly been rejected in the forums below including the High Court. The appeal has no merit and is dismissed. Parties will bear their own costs.
Appeals dismissed.
