Income Tax Appellate Tribunal - Delhi
Income-Tax Officer vs Dipson And Co. on 14 September, 1993
Equivalent citations: [1994]49ITD125(DELHI)
ORDER
Manzoor Ahmed Bakhshi, Judicial Member
1. We are disposing of this appeal of the revenue and the cross objection filed by the assessee by this consolidated order. The appeal of the revenue is directed against the order dated 30th August, 1989 of CIT(A)-IV, New Delhi and the dispute is relating to expenditure of Rs. 15,000 in respect of discontinued business. The respondent is a firm and had been engaged in the contract business. During the assessment year 1985-86 assessee had disclosed the income of Rs. 1,41,428 in respect of discontinued contract business resulting from arbitration award. The Assessing Officer disallowed the expenditure for two reasons. One is that vouchers but for payment of Rs. 15,000 paid to Mrs. Sudha Kapur, lawyer being daughter of one of the partners, had not been produced by the assessee to support the claim. The Assessing Officer also disallowed the claim on the ground that under Section 176(3A) the entire sum received was assessable to tax and there was no scope for allowing any deduction in respect of the income.
2. The learned CIT(A) observed that assessee had furnished confirmation from Mrs. Sudha Kapur in regard to the expenditure of Rs. 55,000 and if the Assessing Officer was dissatisfied with the evidence furnished he ought to have questioned Mrs. Sudha Kapur. The CIT(A) being of the view that deduction was wrongly denied to the assessee allowed the relief of Rs. 55,000 to the assessee being the expenditure incurred in connection with the award.
3. Revenue is aggrieved. The learned D.R. Shri Sandeep Tandon contended that under Section 176(3A) no deduction of expenses was permissible in respect of discontinued business. Shri Tandon relied upon the following authorities in support the contention that the expenditure in relation to discontinued business was not allowable as a deduction :
1. Joshi & Varma v. CIT [1979] 119 ITR 262 (Bom.)
2. CIT v. Lahore Electric Supply Co. Ltd. [1966] 60 ITR 1 (SC)
3. P.V. Gajapathi Raju v. CIT [1989] 176 ITR 238 (Mad.)
4. CIT v. Bankamal Naranjan Das Kaithal [1967] 65 ITR 33,7 (Punj.)
5. New Savan Sugar &Gur Refining Co. Ltd. v. C/T[1969] 74ITR7(SC).
The learned Departmental Representative, however, was fair enough to concede that the decisions relied upon by him were in respect of the law prior to the insertion of Section 176(3A) but contended that the principle laid down in these decisions would be applicable. It was accordingly urged that the appeal of the revenue may be allowed.
4. Shri D.C. Kapur partner of the firm contended that assessee had contracted with Mrs. Sudha Kapur to pay 40% of the amount awarded as remuneration for pursuing the matter. In assessment year 1980-81 part of the amount was received out of which 40% deduction in respect of amount paid to Mrs. Sudha Kapurwas allowed as a deduction. Forth year under appeal, though assessee had agreed to pay 40% of the amount awarded to Mrs. Sudha Kapur she was persuaded to accept lesser amount as the amount payable to her as agreed was substantial. There was thus, no justification for disallowance of the expenditure in the year under appeal.
5. We have given our careful consideration to the rival contentions. It is well established principle of law that expenditure incurred in respect of discontinued business is not allowable as a deduction. The issue involved in this case, however, is somewhat different. The real issue involved is as to whether under Section 176(3A) the entire receipts are taxable or is it the income computed after allowing the expenditure incurred in respect of the receipts. Sub-section (3A) was inserted by Taxation Laws (Amendment) Act, 1975 w.e.f. 1-4-1976 and it reads as under :
176(3A). Where any business is discontinued in any year, any sum received after the discontinuance shall be deemed to be the income of the recipient and charged to tax accordingly in the year of receipt, if such sum would have been included in the total income of the person who carried on the business had such sum been received before such discontinuance.
This sub-section has two parts. In first part it is provided that any sum received after the discontinuance of business shall be deemed to be the income of the assessee and charged to tax accordingly in the year of receipt. If one reads this part of the section only, an impression might be created that it is the sum received which is chargeable to tax. However, when we read the second part of the sub-section, it becomes abundantly clear that it is that sum, which would have been included in the total income of the person who carried on the business had such sum been received before such discontinuance, which is chargeable to tax and not the entire receipt. Now what would be the sum which would have been included in the total income of the person had the business not been discontinued. In our considered view, the sum that would have been included in the total income of the person would be the net income computed after taking into account the expenditure incurred in respect of the receipt. Therefore, on true interpretation of Section 176(3A) the sum which is includible as income is the net income computed after taking into account the expenditure incurred for receiving such income.
6. In the present case, assessee has incurred expenditure of Rs. 55,000 for earning the amount of award. This is supported by evidence and the mere fact that the recipient is the daughter of one of the partners of the firm would not be a ground for making the disallowance in the absence of a finding that the expenditure incurred was excessive or unreasonable having regard to the services rendered. The authorities cited on behalf of the revenue are in a different context and not in regard to Section 176(3A). In the cases relied upon by the revenue it has been held that the expenditure incurred by the assessee after discontinuance of the business is not allowable as a deduction in computing the income from profits and gains of business or profession. The issue before us is relating to assessment of income after the discontinuance of business under Section 176(3A) and its computation. The court decisions are to be read in the context in which the same have been rendered as held by their Lordships in the case of CIT v. Sw. Engg. Works (P.) Ltd. [19921 198 ITR 297 (SC). Considering the cited decisions in the context in which these have been rendered, we are of the firm view that these are inapplicable to the facts of this case. In fact we are aware of a decision of the Rajasthan High Court in the case of CIT v. Fore sole Ltd. [1985] 153 ITR 3491 where the issue involved in this appeal has been directly dealt with. In that case assessee had discontinued the business. Dispute had been referred to arbitration and an amount was awarded to the assessee in a subsequent year. A question arose as to whether the entire sum received was assessable to tax under Section 176(3A) or expenses relating to arbitration was deductible. The revenue held that the expenditure relating to arbitration was not deductible. The Tribunal however, held that expenditure relating to arbitration was deductible and the income alone was assessable under Section 176(3A). On a reference, the Hon'ble High Court held that for computing the income of the assessee for the purposes of assessment of tax under the Act, the expenditure was necessarily to be excluded from the amount that was received by the assessee and the view taken by the Tribunal was justified and that no question of law arose from it.
7. The decision of the CIT (A) in allowing expenditure in respect of the awarded sum in the case of the assessee being in consonance with the decision of the Rajasthan High Court in the case of Fore sole Ltd. (supra), we uphold the same and decline to interfere.
8. In the result, appeal of the revenue is dismissed.
9. The cross-objection filed by the assessee is merely supporting the order of CIT(A). No separate relief has been sought. The same is accordingly dismissed.