An individual is partner in a firm in HUF capacity. He deposits funds in the firm in individual capacity (prior to 1.4.85) such interest cannot be disallowed in the case of the firm u/s 40(b) - explanation 2 - is only declaratory hence applicable to earlier years then 1.4.85 also.
[Followed/applied in - 224 ITR 753 (SC); 233 ITR 383 (Ker); 283 ITR 759 (Mad); 246 ITR 484 (Mad); 246 ITR 338 (All); 242 ITR 124 (SC); 244 ITR 484 (Mad); 256 ITR 289 (Mad); 258 ITR 415 (All)]

Three Assessment Years were involved i.e. Assessment Years 1977 - 78, 1978 - 79, and 1979 - 80. Assessee received substantial quantities of steel sheets from MMTC and claimed that it is manufacturing sterilizers. It claimed, in the return, losses for 2 years and declared nominal income in the third year. The A.O. carried out enquires, survey, and also impounded books. He found that no manufacturing activities were carried out and steel received from MMTC was sold in the black market. The A.O. issued notices on 14/2/80 proposing addition in the returned loss/income. On 29/2/80 assessee filed application before ITSC for 3 years stating that due to financial difficulties, he did not manufacture sterilizes and sold the steel in the open market and earned an income in all, of Rs. 1.28 lac for 3 years. Beside the assessee vide his letter dated 1/3/80 requested ITO to stop investigation as he has filed application before ITSC. On 3/3/80 ITO asked from the Assessee, the copies of settlement application, which was declined by Assessee saying that it is secret document. The ITO refused to stay enquires. Later A.O made draft order on 19/3/80, which was received by CIT on 3/4/80. the CIT objected to the admission of the application. The ITSC did not admit Asst. Year 77- 78 but admitted 78-79 and 79-80. both parties went to Supreme Court Which Held:
1) it is incorrect on the part of Assessee to allege that I.T.O drew unfair facts from the application. Dates show that he could not have received the application on the date when he proposed draft order u/s 144B.
2)No distinction, was made by the assessee for the three years - common application, common data, common facts - common disclosure - the ITSC incorrectly made out a case for the assessee by creating distinction between 77-78,78-79, 79-80. No valid reasons were assigned by the ITSC for admitting application for two years and rejecting for one.
3) The assessee has brazenly and deliberately perpetrated fraud upon the revenue with a view to evade taxes legitimately and lawfully payable by it.
4) The orders of ITSC was vitiated by misdirection in law in having held that ITO has no power to proceed with or collect material after the date of submission of application u/s 245C and in having made out a case for the assesses by creating a distinction between Asst. Year 1978 - 79, 1979-80 and 1977-78 where no distinction existed.
5) The ITO is not obliged to stop further proceeding w.e.f the date when application is filed u/s 245C. The ITO can continue with the proceeding before him till date of submission of report by the CIT and may be even beyond.
6) The Cit Can refer to any material collected after the filling of application u/s 245C and such material can also be looked into by ITSC while deciding the question whether to admit an application or not.
(Followed - CIT Vs Express News papers 206 ITR 443)

Assessee Co.is a dealer in shares. It exchanged shares held by it in one company 'A' with the shares in another company 'B' and sold the newly acquired shares, which fetched it higher money over the cost of original shares in 'A'. Difference between book value of original shares in 'A' and market value of shares of 'B' is taxable as business profit.

Extensive repairs to structure of cinema building was carried out new machine, furniture, sanitary fittings and electrical wiring were installed in the cinema theatre. They are not current repairs expenses are not deductible.
(Referred to /applied in - 251 ITR 455 (Gau); 252 ITR 577(Guj);253 ITR 405 (Del) 255 ITR 243 (Mad))

Redemption of Preferences Shares by a company is a sale of shares by shareholders to the company. It can also be termed as buy back of the shares by the company. It is also a transfer by relinquishment of assets by shareholder for gain. Preference shares are held as asset by the assessee. The difference between the purchase price paid by assessee and the price at which redeemed by the Company is taxable as capital gains.
(Applied in 228 ITR 163 (SC) - Kartikeya Sarabhai Vs CIT)

Interest earned on delayed payment of Compensation on acquisition of land is a revenue receipt taxable under the I.T.Act.
[Followed in - 238 ITR 113 (Del)]

AACis entitled to durect addition in respect of items not considered by AO.(Power of AAC/CIT(A) u/s 251).
[Followed/referred in - 240 ITR 556(Del); 251 ITR 864 (Del); 251ITR 864 (Del); 259 ITR 99 (Mad)]

HUF is a Partner - Fund was invested by individual - Interest on fund is followed from the income of the firm - based on - Brijmohan Das Laxman Das 223 ITR 825 (SC) [Followed in 238 ITR 759 (Mad); 239 636 (Bom); 242 ITR 124 (SC); 253 ITR 496 (Guj); 256 ITR 289 (Mad)]

SOCIETIES FINANCING EDUCATIONAL INSTITUTIONS ISSUED ALSO GET EXEMPTION UNDER SECTION 10(22)
The object of the assessee society was to establish, run, manage, or assist colleges, schools and other educational institutions/organizations existing solely for educational purposes. Assessment orders passed granting exemption were cancelled u/s. 263 by CIT on the ground that society was only financing the running of an educational institution. High Court held that the sole purpose for which assessee society has come into existence was education at the level of college and school and that an educational society could be regarded as an educational institution, of the society was running an educational institution not for the purpose of profit, but its existence was solely for the purposes of education. Supreme Court offering the decision of the High Court that it would be unreal and hypothetical to hold that the assessee society was only a financing body and would not come within the scope of "other educational institution" as specified in section 10(22) of the Act. An educational society or a trust or other similar body running an educational institution solely for educational purposes and not for the purposes of profit could be regarded as "other educational institution" Availability of exemption need to be evaluated every year to find out whether the institution existed during the relevant year for educational purposes and not for purposes of profit. [Followed/Applied/Relied in 243 ITR 229 (Mad); 245 ITR 170(Mad); 250 ITR 488(Bom); 257 ITR 292 (Mad)]

Proviso 'a' to section 43B is retrospective.
Deduction of tax, duty, cess or fee u/s. 43B has to be on actual payment basis. A proviso introduced clarifying that sums paid after accounting year but before due date for submission of the of the return is deductible. It should be treated as retrospective.
The proviso 'a' introduce by Finance Act 1987 supplies an obvious omission. A proviso inserted to remedy unintended consequences and to make the provision workable, should be read into the section from the beginning so as to give it a reasonable interpretation.
[FOLLOWED IN 226 ITR 465 (MP) ; 230 ITR 683 (Guj);234 ITR 644(Guj) 235 ITR 398 (MP) 246 ITR 209 (All); 248 ITR 248 (Orissa); 253 ITR 595 (Raj); 256 ITR 598 (Raj); 259 ITR 624 (Guj)]