1975 (11) TMI 62 - AT - Income Tax

Court dismisses appeals on Head Office expenses, affirms dispute settlement office not business activity. ITO to reassess terminal allowance.

Forasol Limited. Versus Income Tax Officer.

The court dismissed Appeals No. 645 and 646, upholding the disallowance of Head Office expenses due to lack of evidence of income and expenses. It also ... - Issues Involved:1. Disallowance of Head Office expenses for the period 1st Jan., 1968 to 31st March, 1968.2. Determination of business activity for the assessment year 1969-70.3. Direction to allow terminal allowance under Section 43(A) of the IT Act, 1961.Issue 1: Disallowance of Head Office expenses for the period 1st Jan., 1968 to 31st March, 1968The assessee, a company, claimed Rs. 39,356 as Head Office expenses for the period 1st Jan., 1968 to 31st March, 1968. The ITO disallowed this claim, stating that the basis for the calculation of these expenses was absent since there was no income to the company during these three months and no details of the expenses were provided by the Head Office. The AAC upheld this disallowance, noting that the expenses were calculated based on the percentage of Indian income vis-a-vis the total income of the Head Office, and since there was no income in the Indian Branch, there was no basis for inclusion of proportionate expenditure. The Tribunal confirmed the AAC's findings, emphasizing that no evidence was produced to show any income during the period in question and the Head Office did not confirm the expenses for the period.Issue 2: Determination of business activity for the assessment year 1969-70For the assessment year 1969-70, the ITO found that the assessee did not carry on any business during the relevant year and computed the total income at Rs. 3,28,077. The assessee contended that it had to maintain an office in India to process arbitration proceedings and represent claims before the arbitrator, which should be considered a business activity. The AAC disagreed, stating that the maintenance of an office for settling outstanding disputes cannot be treated as a business activity capable of producing profit. The Tribunal supported the AAC's decision, referencing several case laws, including Indraprastha Steel Industries Ltd. vs. ITAT, L.M. Chhabda and Sons vs. CIT, and CIT Punjab vs. Lahore Electric Supply Co. Ltd., which established that activities related to the settlement of disputes and maintenance of an office do not constitute a business capable of producing taxable profit.Issue 3: Direction to allow terminal allowance under Section 43(A) of the IT Act, 1961The Department appealed against the AAC's direction to allow terminal allowance under Section 43(A) of the IT Act, 1961. The Tribunal noted that this issue was consequential and should be decided based on the findings of the Tribunal in the assessment year 1967-68 in ITA Nos. 971/JP/1972-73 and 124/JP/1975-76. The Tribunal directed the ITO to ask the assessee to place relevant data on record and determine the increased liability in Indian currency for making payments towards the cost of the asset. The ITO was instructed to allow extra depreciation based on this increased liability, in accordance with the Tribunal's observations and the law.Conclusion:Appeals No. 645 and 646 were dismissed, and appeal No. 660 was allowed for statistical purposes, directing the ITO to reassess the terminal allowance under Section 43(A) of the IT Act, 1961.