1984 (2) TMI 34 - HC - Income Tax

High Court upholds deductions for legitimate expenses post-business discontinuance.

The High Court rejected the Commissioner's application, upholding the Tribunal's decision to allow deductions for expenses incurred by the assessee after ... Reference Issues Involved: The issue involves the deduction of expenses incurred by the assessee after discontinuance of business and the interpretation of section 176(3A) of the Income Tax Act, 1961.Judgment Details:The Commissioner of Income-tax moved an application under section 256(2) of the Income Tax Act, 1961, seeking a direction to the Income-tax Appellate Tribunal to refer a question of law to the High Court. The question pertained to the deduction of expenses amounting to Rs. 8,18,262, Rs. 33,205, and Rs. 31,260 by the assessee after the discontinuance of business. The Tribunal had allowed these deductions, holding that the expenses were legitimately incurred by the assessee in connection with various activities. The Commissioner contended that the expenses should not be deductible under section 176(3A) of the Act, which deems the sum received after business discontinuance as the recipient's income. The High Court heard arguments from both parties.The High Court rejected the Commissioner's application, agreeing with the assessee's counsel that the question raised was self-evident. It was established that only income can be taxed, and expenditure must be deducted to compute income accurately. The Tribunal's decision to allow the deductions for expenses related to arbitration proceedings, transportation charges, and administrative costs was deemed appropriate. The Tribunal had correctly considered the expenses incurred by the assessee in recovering the awarded amount. Therefore, the High Court found no legal error in the Tribunal's decision and dismissed the Commissioner's application. Each party was directed to bear their own costs.