- (1.) THE Income -tax Appellate Tribunal, Allahabad, has referred the following two questions of law Under Section 256(1) of the Income -tax Act, 1961 (hereinafter referred to as 'the Act'), for the opinion of this court: '1. Whether, on the facts and in the circumstances, the Tribunal was justified in rejecting the assessee's claim that Rs. 23,158 be allowed while computing the assessees' total income as the said expenses had been incurred by it in running the company ? 2. Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the assessee -company had earned capital gain of Rs. 23,072 on the acquisition of the shares of National Insurance Company Ltd., of the face value of Rs. 5,82,742 by the General Insurance Corporation of India Ltd., for Rs. 6,05,815 on the nationalisation of the general insurance business during the accounting period corresponding to the assessment year 1975 -76 ?'
(2.) THE applicant company during the assessment year 1975 -76 derived income from dividend amounting to Rs. 1,35,514 and had also received a sum of Rs. 11,760 as management compensation from National Insurance Company Ltd. The Income -tax Officer brought to tax both the aforesaid items as income from other sources Under Section 56 of the Act. The applicant had claimed certain expenses aggregating to Rs. 23,157.84. The details of which are as follows : Rs. Insurance 1,514.65 Charges general 4,894.65 Travelling and conveyance 2,084.58 Car expenses 4,901.18 Subscription and cost of books 2,585.80 Commission and discount 168.10 Directors fees 1,500.00 Loss on sale of car 125.88 Depreciation 5,383.00 - - - - - - - - -23,157.84 - - - - - - - - - - It was claimed that these were business expenses and, therefore, deduction ought to have been allowed while computing the taxable income. In the capital reserve account, there was an addition of Rs. 23,072 which represented surplus arising to the applicant on the acquisition of 4,500 ordinary shares of National Insurance Company Ltd., by the Government of India on account of the nationalisation of the insurance company. The Government of India has paid a sum of Rs. 6,05,814. The book value of these shares was Rs. 5,82,742. According to the Income -tax Officer, it was surplus chargeable to capital gains Under Section 45 of the Act and as shares were kept for more than five years, F 'it would be subjected to long -term capital gains'. The Income -tax Officer, while making the assessment did not allow the business expenditure of Rs. 23,157.84, as according to him the applicant was not carrying on any business and these expenses have not been incurred for earning dividend income. In the appeal filed by the applicant before the Appellate Assistant CommisG sioner, it was contended by the applicant that it had received shares of M. P. Industries Limited whose value was only Rs. 6.52 per share in the market and, therefore, the applicant instead of making any capital gain has actually suffered loss of Rs. 1,27,761 which should have been allowed instead of taxing it as capital gains. The Appellate Assistant Commissioner did not accept the plea of the appellant and upheld the assessment. The appeal filed by the applicant before the Tribunal had also failed.
(3.) WE have heard Shri R. S. Agrawal, learned counsel for the appellant, and Shri Govind Krishna learned counsel appearing for the Revenue. Learned counsel for the appellant submitted that the applicant had incurred expenses during the assessment year in question, which was for business purposes since it was making all efforts to restart the business and, therefore, the same should have been allowed deduction while computing the income. He further A submitted that the market value of the shares of M. P. Industries Ltd., which the applicant got in lieu of the shares of National Insurance Company Limited ought to have been taken into consideration while computing the capital gains/losses and necessary benefit should have been given.;