1963 (8) TMI 48 - HC - Income Tax

High Court rules unclaimed wages not income under Income-tax Act; foreign tour expenses not deductible

AMBICA MILLS LTD. Versus COMMISSIONER OF INCOME-TAX, GUJARAT.

The High Court ruled in favor of the assessee, determining that unclaimed wages retained their character as liabilities and could not be treated as income ... UNCLAIMED WAGES - EXPENSES FOR REPLACING OLD MACHINERY BY NEW, NATURE OF Issues Involved:1. Taxability of unclaimed wages under Section 10(2A) of the Income-tax Act.2. Allowability of foreign tour expenses as revenue expenditure under Section 10(2)(xv) of the Income-tax Act.Detailed Analysis:1. Taxability of Unclaimed Wages:The first issue pertains to whether the unclaimed wages for the years 1950 to 1953, which were carried forward in the balance sheets, could be taxed under Section 10(2A) of the Income-tax Act in the assessment years 1955-56, 1956-57, and 1957-58.Facts and Contentions:- The assessee-company, a public limited company engaged in textile manufacturing, maintained accounts on a mercantile system and recorded wages as liabilities when they accrued.- Some wages remained unclaimed and were transferred to an 'unpaid wages account' and shown as liabilities in the balance sheets.- The Income-tax Officer added these unclaimed wages to the profits, reasoning that the liabilities had become time-barred and thus ceased to exist.- The Appellate Assistant Commissioner and the Tribunal upheld this view, stating that the liabilities were time-barred and hence taxable as income under Section 10(2A).Legal Reasoning:- The assessee argued that the liabilities were acknowledged annually in the balance sheets, preventing them from becoming time-barred.- The Tribunal's assumption that the liabilities had become time-barred overlooked these acknowledgments.- The High Court held that the annual acknowledgments in the balance sheets constituted valid acknowledgments under Section 19 of the Limitation Act, thereby preventing the liabilities from becoming time-barred.- Consequently, the unclaimed wages retained their character as liabilities and could not be treated as income under Section 10(2A).Judgment:- The High Court answered both questions in favor of the assessee:1. The sums of Rs. 13,783, Rs. 1,305, and Rs. 2,643 are not assessable under Section 10(2A) for the respective assessment years.2. The Tribunal's decision that the debts were time-barred was incorrect in law.2. Allowability of Foreign Tour Expenses:The second issue concerns whether the foreign tour expenses incurred by the assessee-company for sending its directors and a superintendent to Europe were allowable as revenue expenditure under Section 10(2)(xv) for the assessment years 1956-57 and 1957-58.Facts and Contentions:- The expenses were incurred for tours to study the latest developments in textile manufacturing and processing.- The Income-tax Officer, the Assistant Commissioner, and the Tribunal held that these expenses were capital in nature and not allowable as revenue expenditure.- The assessee argued that the tours were for study purposes and did not result in the acquisition of any capital asset.Legal Reasoning:- The High Court examined the resolutions and reports related to the tours.- For the 1955 tour, the resolution indicated that the tour was for studying new developments and methods, and the subsequent report detailed observations on new machinery and processes.- The Tribunal found that the tours were undertaken with the objective of replacing old machinery with new, modern machinery, which was subsequently purchased in 1956 and 1957.- The High Court held that the Tribunal's finding was based on evidence and was not perverse or unreasonable.- The expenditure was deemed capital in nature as it was incurred for the purpose of acquiring new machinery, which constituted a capital asset.Judgment:- The High Court concluded that the foreign tour expenses were capital expenditure and not allowable under Section 10(2)(xv).- The question was answered in the negative, affirming the Tribunal's decision.Costs:- Both parties were directed to bear their own costs of the reference, as they had partially succeeded.