TMI Blog1970 (11) TMI 7X X X X Extracts X X X X X X X X Extracts X X X X ..... t was informed that the award had not yet been finalised by the office of the Collector. On January 5, 1953, the assessee filed a writ petition in the High Court of Punjab at Simla, under article 226 of the Constitution. The Collector made another award on January 8, 1953, under which a sum of Rs. 4,00,000 only was to be given as compensation. The High Court accepted the petition holding that an award had already been made before the assessee had moved the court and directed that the possession of the property be taken on payment of compensation in accordance with the earlier award or, in the alternative, proceedings for withdrawal from acquisition under section 48 of the Land Acquisition Act might be taken. While the writ petition was still pending in the High Court the assessee entered into an agreement with Messrs. Delhi Glass Works Ltd. on 18th September, 1953. The preamble of this agreement stated that in view of the fact that the dairy farm of the assessee-company had been acquired by the Government under the Land Acquisition Act, it had requested the Delhi Glass Works Ltd. to give on lease for a period of thirty years, out of its factory premises, land measuring 30.56 ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n allowable expenditure. But on July 19, 1961, a revised return declaring a loss of Rs. 2,37,340 was filed and the sum of Rs. 1,70,000 paid to Delhi Glass Works Ltd. was claimed as an allowable deduction under the Income-tax Act. The Income-tax Officer rejected the assessee's claim regarding Rs. 1,70,000 as an allowable deduction as according to him the payment of that amount was not an expenditure incurred for the normal conduct of the business but was in respect of acquisition of a fixed capital asset which the assessee intended to acquire on a long term lease from the Delhi Glass Works Ltd. The Income-tax Officer was also of the view that no expenditure was actually incurred by the assessee for it was able to recoup the same amount from the Government even though at a later date. The assessee appealed to the Appellate Assistant Commissioner who upheld the assessee's claim on the ground that the payment of Rs. 1,70,000 was for saving future recurring expenditure which the assessee would have been obliged to incur and as such it was covered by the term " commercial expediency." Against the order of the Appellate Assistant Commissioner an appeal was preferred by the Income- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ore the court in that case was whether the annual sum of Rs. 40,000 which the assessee-company had agreed to pay to the lessor, the Government of Assam, in addition to the rent and royalties, as a consideration for the lessor not granting to any other person any lease, permit or prospecting licence for limestone throughout the Khasi and Jaintia Hills District, without imposing a condition that the limestone extracted therefrom should not be used for the manufacture of cement, was expenditure of a capital nature and, therefore, not allowable under section 10(2)(xv) of the Act. The Calcutta High Court had answered the question in the affirmative and its decision was affirmed in appeal by the Supreme Court. The Privy Council in Tata Hydro-Electric Agencies Ltd. v. Commissioner of Income-tax, pronounced at page 226 : " 'What is " money wholly and exclusively laid out for the purposes of the trade " is a question which must be determined upon the principles of ordinary commercial trading. It is necessary, accordingly, to attend to the true nature of the expenditure, and to ask oneself the question : Is it a part of the company's working expenses ; is it expenditure laid out as part ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing on the business of fish-mongers as the company carried it on in the year in question. It was not a question as to what some wise and prudent businessmen in the position of the directors of the company would provide for before they arrived at the profits to divide among their shareholders. It was held that the expense was not incurred in the course of the carrying on of the business of fish-mongers which was the line of business of the company. It ceased to be a part of the business, but it left an unpleasant legacy behind it. It was held that the payment had nothing to do with the business which was carried on by the company during the previous year. Reference was also made to the case of Mallett v. Staveley Coal Iron Co. Ltd. The respondents, a colliery company held the right to work certain beds of coal under mining leases obtained in 1882 and 1919. Under these leases the company contracted to pay a minimum rent and royalties to work the coal according to approved practice and in one case to restore the surface of the land. After a few years the company agreed with the lessor for the surrender of a part of the seams demised by the lease of 1882 and the whole of those d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of putting an end pro tanto to the trade. It was also held that it was a capital payment and not a revenue payment. Reference was also made to the ruling of the King's Bench Division in the case of Hyett v. Lennard. It was observed by Macnaghten J. that if the lessors had been willing to accept a surrender of the lease, the cases cited show that a sum paid by the respondent to obtain their consent to its surrender would not be money wholly and exclusively laid out for the purposes of the trade. If the assessee could not have found a person who had taken assignment of the lease, and he had paid to the assignors a sum of money in consideration of his doing so, that also would have been an expense which could not be deducted for the purposes of income tax. On the authority of the above judicial pronouncements it must be held that the payment of Rs. 1,70,000 made by the assessee-company was not an expense laid out or expended wholly and exclusively for the purpose of the business. The payment was a capital expenditure. The Income-tax Officer was, in the circumstances, justified in not allowing it. There is also a case of Benarsidas Jagannath, In re which appears to have been app ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on for the premature termination of the maraging agency. The Income-tax Officer held that the payment was not a revenue expenditure, but the Appellate Assistant Commissioner took a different view. The Appellate Tribunal held that the advantage which the company had gained was of such an enduring nature that it amounted to capital expenditure. In the High Court it was held that the directors compounded a consolidated claim of the managing agents whose services were terminated apparently without any cause and a sum of Rs. 6,00,000 was paid for the purpose which undoubtedly resulted in an enduring benefit, from an economic point of view, for the assessee-company. In that view, the payment of Rs. 6,00,000 was only a capital expenditure and was not a permissible deduction under section 10(2)(xv) of the Income-tax Act, 1922. On behalf of the assessee certain cases were cited. It, however, seems to us that those cases have no reference to the point which is sought to be made in the present case. The case of Stale of Madras v. G. J. Coelho was a case of payment of interest on moneys borrowed for purposes of purchasing the plantation. It was held that the interest was not capital expend ..... X X X X Extracts X X X X X X X X Extracts X X X X
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