Law: Income Tax Act, 1922

Section: 2(6C),6

Income tax Act (XI of 1922)--Ss. 2 (6 C) & 6 Assessee and foreign firm agreeing to act as joint venture for purposes of earning profit Such agreement not one of agreements entered into ordinary course of business Loss Credit amount in favour of foreign firm Assessee transferring such amount due to foreign firm to "reserve" Question whether such amount could have been appropriated by assessee towards alleged losses suffered by them when their entitlement to any amount of damages/ loss was not adjudicated upon by any competent forum Held, assessee's action of appropriation of said amount could not change nature of amount Nature of amount is determined with reference to time of receipt and/or time of accrual Any subsequent posting in account by recipient unilaterally not backed by consent of payer or by an order of a competent Court/forum could not alter nature of such amount Treatment of such amount as trading profit for income tax was, therefore, not justified. Morlay (H. M. Inspector of Taxes) v. Messrs Tattersall 22 Tax Cas. 51 ; Hotel Metropole Ltd., Karachi v. Commissioner of Income tax (Central), Karachi 1973 P T D 371 ; Van Den Verghs Ltd. v. Clerk (H. M. Inspector of Taxes) 19 Tax Cas. 390 and Hari Kailash & Co. v. Commissioner of Income tax, U. P, C. P. and Berar (1952) 22 I T R 195 ref. Commissioner of Income tax and Excess Profits tax, Madras v. South India Pictures Limited (1956) 29 I T R 910 and Commissioner of Income tax, Nagpur v. Rai Bahadur Jai Ram Valji and others (1959) 35 I T R 148 distinguished. JUDGMENT AJMAL MIAN, J. The above Income tax reference raises following two questions of law for opinion of this Court: (1) Whether in the facts and circumstances of case the Tribunal is right in holding that the sum of rupees four lacs transferred from the liability due to Messrs Geoi Strazivanja to the `Reserve' on 41st July, 1965 out of which Bonus Shares of the face value of Rupees Two lacs were issued in the Account year 1965 66 was constructive revenue receipt and liable to Income tax and was not of capital nature'! (2) It the answer to Question No. 1 be in the affirmative, could the sum of rupees four lass be chargeable to tax in the…

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