Dr. T.A. Quereshi vs. C.I.T.
(287 ITR 547 SC)
The assessee is a doctor by
profession. CBI caught him, while transporting a huge quantity of contraband
article. Further raid on his residential premises revealed the existence of
one clandestine laboratory to manufacture heroin powder along with several
contraband drugs. The assessee doctor filed his Income-tax Return and claimed
therein that the heroin seized from him formed part of his stock-in-trade,
hence its loss on account of seizure is an allowable deduction while computing
his profit and gains of business/profession.
The Assessing Officer did not
accept the contention of the assessee and added a sum of Rs. 5,50,000/-, the
assessed value of heroin seized, as income from undisclosed source. The order
of the Assessing Officer was upheld by the Commissioner of Income-tax
(Appeals). The Tribunal reduced the value of heroin seized to Rs. 2,00,000/-,
but refused to deduct this amount from the assessee’s income as a business
loss, since according to the Tribunal the assessee had not claimed it as a
business loss. However, subsequently on an application by the assessee u/s.
245(2) the Tribunal recalled its earlier order and held that the assessee is
entitled to claim deduction as a business loss. The Tribunal relied upon the
law laid down by Supreme Court in CIT vs. Piara Singh (1980) 124 ITR 40(SC)
The revenue felt aggrieved
and filed an appeal before High Court, raising the following questions of law
(page 353 of 275 ITR).
"1. Whether possession of
heroin, in contravention of provision of the Narcotic Drugs and Psychotropic
Substances Act, 1985, can be treated to be stock-in-trade possessed by a
medical practitioner?
“2. Whether such medical
practitioner can be permitted to deduct Rs. 2 lakhs from such stock of
heroin as loss during the trade?
“3. Whether the order
passed by the Income-tax Appellate Tribunal, Indore Bench, is perverse and
illegal?”
The High Court allowed the
appeal and set aside the order to the Tribunal.
The aggrieved assessee went
in appeal to Supreme Court and contended that the High Court had relied on
Explanation to section 37, which has no application in this case. Section 37
relates to business expenditure, while in this case the assessee was concerned
with business loss and not with business expenditure.
The Supreme Court observed
that the Tribunal in its order dated 31st March 1993, recorded a finding that
the assessee was engaged in manufacture and selling of heroin. The Tribunal
had reiterated the view vide its order dated 14th October 1998, that the
assessee was doing the business of manufacture and sale of heroin. Once the
Income-tax authorities record such a finding of fact it follows that any loss
from such a business is a business loss. The facts of the case are squarely
covered by the decision of the Supreme Court in CIT vs. Piara Singh (1980) 124
ITR 40; AIR 1980.
The Supreme Court observed
that the cases are to be decided by courts on legal principles and not on
one’s own moral views. Positive jurists like Benthem and Austin have pointed
out that law is different from morality.
Appropriate authority,
Income-tax Deptt. vs. R. Shanmuganathan (decd. by LRS) and Others (2006) 287
ITR 558 (SC)
The pre-emptive purchase of
the immovable property was made by the Central Government under Chapter XX-C
of the I.T. Act, 1961, which prevented the owners from enjoying the property.
The acquisition was set aside
as without jurisdiction and the appellant owners were directed to return the
entire amount received by them from the Central Government with interest @ 15%
from the date on which they received the money, till the date of refund.
On appeal, the Madras High
held that when lawful possession was denied, the responding appropriate
authority could not claim any interest for the amounts paid towards the said
acquisition. [242 ITR 652].
The only question before the
Supreme Court was whether the Appropriate Authority was entitled to interest
on the purchase price, which was refunded by the respondents.
The Appropriate Authority had
claimed that the respondent owners had enjoyed the benefit of the purchase
price for several years. On the other hand the Appropriate Authority was
deprived of the right to sell the property, which it could have done under
Chapter XX-C of the Income-tax Act, 1961. The possession of the premises with
the Appropriate Authority was “fruitless”. However technically speaking the
Appropriate Authority was in possession of the property.
The Supreme Court, while
setting aside the decision of the Division Bench in so for as it did away with
the grant of interest, reduced the rate of interest to 7˝ per cent.
