1987 (3) TMI 7 - HC - Income Tax

Shed occupants' receipts taxable as business income, repair costs allowed. Interest challenge under section 139(8) permitted. Business refreshments not entertainment.

Commissioner Of Income-Tax Versus AP Small Scale Industrial Development Corporation

The Tribunal held that receipts from occupants of sheds are taxable as business income, allowing related repair expenditures. Appeals against interest ... Business Expenditure, Delay In Filing Return, Entertainment Expenditure, Return Issues Involved:1. Taxability of receipts from occupants of sheds and buildings.2. Appealability of interest charged u/s 139(8).3. Nature of expenditure on refreshments served to customers.Summary of Judgment:Issue 1: Taxability of Receipts from Occupants of Sheds and BuildingsThe Tribunal held that the receipt of Rs. 1,07,300 from the occupants of the sheds in the Craftsmen's Guild at Mallepally and other industrial estates run by the assessee is assessable to tax under the head 'Business'. Consequently, the entire expenditure of Rs. 10,211 incurred by the assessee on repairs of those buildings is allowable as business expenditure. The Tribunal relied on the Supreme Court decisions in CIT v. National Storage Pvt. Ltd. [1967] 66 ITR 596 and Karnani Properties Ltd. v. CIT [1971] 82 ITR 547, concluding that the services rendered by the assessee to the craftsmen were part of business activities aimed at earning profits. The High Court agreed with the Tribunal's findings, emphasizing that the primary object of the assessee is to promote small scale industries, and the receipts should be assessed under section 28 of the Act as business income.Issue 2: Appealability of Interest Charged u/s 139(8)The Tribunal found that an appeal lies to the Appellate Assistant Commissioner against the charging of interest by the Income-tax Officer u/s 139(8). The High Court, referencing the Supreme Court's decision in Central Provinces Manganese Ore Co. Ltd. v. CIT [1986] 160 ITR 961, clarified that the levy of interest is part of the assessment process and is appealable if the assessee disputes the liability to the levy. The High Court reframed the question to include the context of additions and deductions made in the assessment and answered it in favor of the assessee.Issue 3: Nature of Expenditure on Refreshments Served to CustomersThe Tribunal, following the decision of the Gujarat High Court in CIT v. Patel Brothers and Co. Ltd. [1977] 106 ITR 424, held that the sum of Rs. 8,411 spent by the assessee on tea, coffee, refreshments, etc., served to customers visiting the business premises is not of the character of entertainment expenditure but is allowable as business expenditure. The High Court affirmed this view, referencing its own decision in Addl. CIT v. Maddi Venkataratnam [1979] 119 ITR 514, and answered the question in favor of the assessee.Conclusion:The High Court answered all three questions in favor of the assessee and against the Revenue, with no order as to costs.