Section 257

Section 257 — the law in short

What the courts have decided on section 257, in one screen. Read this first; open an entry when you need the facts, the reasoning and the source.

• Punjab State Industrial Development Corporation Ltd v CIT Supreme CourtHelps department
  I paid the Registrar of Companies a filing fee to increase my authorised share capital. Is that fee deductible as revenue expenditure?
  No. The Supreme Court held that the fee paid to the Registrar of Companies for expansion of a company's capital base is capital expenditure. Although the enlarged capital incidentally helps the business and may help it earn profits, the outgoing was directly related to the expansion of the capital base and keeps that character. Deciding a conflict between the High Courts on a reference made directly to it under section 257, the Court preferred the line of decisions in favour of the Revenue over the Madras view in Kisenchand Chellaram. The question was answered against the assessee.
• CIT v Empire Estate — a firm dissolved by the death of a partner is succeeded, not reconstituted, so there are two assessments Supreme CourtHelps taxpayerValidity unconfirmed
  A partner died mid-year, the deed said nothing about the firm continuing, and the survivors carried on the business under a fresh deed. The officer has clubbed the whole year into one assessment. Can he?
  No. The Supreme Court held that where the partnership deed contains no provision for the firm continuing on the death of a partner, the firm stands dissolved by force of s.42(c) of the Indian Partnership Act 1932; the case is then not one of a change in the constitution of the firm and falls outside s.187, and where the surviving partners continue the business in partnership there is a succession of one firm by another, which attracts s.188 and separate assessments on the predecessor and the successor firm. Two returns and two assessments, not one.
• Indian and Eastern Newspaper Society v CIT Supreme CourtHelps taxpayer
  My assessment is being reopened because an internal audit party told the officer he applied the wrong head of income. Is an audit party's opinion on the law information for reopening?
  No. The Supreme Court held that the opinion of an internal audit party of the Income Tax Department on a point of law is not information within section 147(b). Law, for this purpose, must be created by a formal source - a competent legislature or a competent judicial or quasi-judicial authority - and an audit party performs administrative or executive functions with no power of judicial supervision over the officer's quasi-judicial acts. The part of an audit note that merely points to the law the officer overlooked is information; the part expressing the audit party's own opinion on how that law applies is not, and cannot be taken into account.
• CIT v Rajendra Prasad Moody Supreme CourtHelps taxpayer
  I borrowed to buy shares and paid interest, but the shares paid no dividend this year. Can I still deduct the interest?
  Yes, on the section as it then stood. The Supreme Court held that section 57(iii) looks to the purpose of the expenditure, not to its result. The expenditure must be laid out wholly and exclusively for the purpose of making or earning income, but nothing in the section requires that purpose to fructify into a return, and it does not say the expenditure is deductible only if income is in fact made. The plain construction of the words is that no income need actually have been earned. The Court rejected the Revenue's argument that the narrower wording of section 57(iii), compared with section 37(1), makes the deduction conditional on income arising.

Listed strongest first: Supreme Court, then High Court, then Tribunal, then CBDT. Nothing here has yet been read in full by a chartered accountant — open an entry to see where it came from.