TMI Blog1973 (8) TMI 6X X X X Extracts X X X X X X X X Extracts X X X X ..... - Dated:- 16-8-1973 - Judge(s) : M. R. A. ANSARI., P. N. KHANNA. JUDGMENT The judgment of the court was delivered by KHANNA J.-The assessee, the State Trading Corporation of India Ltd., a government company, incorporated under the Companies Act, 1956, was engaged during the assessment year 1962-63, for which the previous year ended on March 31, 1962, in amongst its other trading activities, the export of low grade iron ore. Supplies were procured from private mine owners. Some of these supplies were to be procured and shipped from the Port of Redi in Maharashtra. The present controversy revolves round the assessee's claim for two of his expenditure items mentioned herein- after, being allowed as revenue expense. The first item relates to the assessee's proposal to construct a building at Lodi Road, which, however, had to be abandoned as the land meant for the building was acquired by, the Government. All the same, the assessee had to pay a sum of Rs. 10,000 to Messrs. LUC Durrant, Architects, for the preparation of the plan for construction of the building. The assessee claimed this to be revenue expenditure, but the Income-tax Officer rejected this claim. The second i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Maharashtra Government can be said to be an expenditure laid out wholly and exclusively for the purposes of the assessee's business in computing the income chargeable under the head Profits and gains of business'? " A number of authorities have been cited by the counsel on both sides in order to indicate the tests, which are generally applied for determining whether any particular item of expenditure is in the nature of a revenue expenditure or an expenditure of capital nature. The Supreme Court in Assam Bengal Cement Co. Ltd. v. Commissioner of Income tax, after examining the case law on the subject, deduced the following principles : (1) Outlay is deemed to be capital when it is made for the initiation of a business, for extension of a business or for a substantial replacement of equipment. As per Bowen L.J., in City of London Contract Corporation. Ltd. v. Styles : "You do not use it for the purpose of your concern, which means, for the purpose of carrying on your concern, but you use it to acquire the concern ". (2) Expenditure may be treated as properly attributable to capital when it is made not only once and for all, but with a view to bringing into existence an asset ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... existence and there was no benefit of enduring nature derived by the assessee. But the expenditure that was incurred was for deriving a benefit of an enduring nature. The subsequent abandoning of the building project is of no consequence. It is not the result, which is relevant for the purpose of determining the nature of the expenditure incurred. According to the Supreme Court in Sree Meenakshi Mills Ltd. v. Commissioner of Income-tax the deductibility of expenditure incurred in prosecuting a civil proceeding would depend upon the nature and purpose of the legal proceeding in relation to the assessee's business and would not be affected by the final outcome of that proceeding. The Supreme Court observed : " However wrong-headed, ill-advised, unduly optimistic, or over-confident in his conviction the assessee may appear in the light of the ultimate decision, expenditure in starting and prosecuting the proceeding may not be denied admission as a permissible deduction in computing the taxable income, merely because the proceeding had failed, if otherwise the expenditure is laid out for the purpose of the business wholly and exclusively..." In the present case, there is no suggest ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unt of the roads and the port not being in a capacity to handle the requisite volume of export. He also pointed out that in subsequent years the assessee had to pay a levy of fifty paise per tonne for export from this port. Mr. B. N. Kirpal, on behalf of the revenue, pointed out, on the other hand, a note made by the chairman of the assessee-Corporation to its board of directors on the basis of which the resolution was passed authorising the making of the said grant to the Government of Maharashtra. He contended that the amount had not been given in lieu of any levy on export, but had been given as an outright grant. It was not even connected with the price structure of the ore purchased by the assessee. Even the workers in the village to whom the amenities, according to the assessee, had been provided, were not the workers of the assessee. There was no connection between the said grant and the business carried on by the assessee. He, therefore, urged that the view of the Tribunal was correct and the said amount should not be regarded as an expenditure laid out wholly and exclusively for the purpose of the assessee's business. While considering the true connotation of the expre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xes imposed as a pre-condition to commence or for carrying on of a business ; it may comprehend many other acts incidental to the carrying on of a business. However wide the meaning of the expression may be, its limits are implicit in it. The purpose shall be for the purpose of the business, that is to say, the expenditure incurred shall be for the carrying on of the business and the assessee shall incur it in his capacity as a person carrying on the business." Bombay Steam Navigation Co. (1953) P. Ltd. v. Commissioner of Income-tax was another case cited before us, where the Supreme Court was of the view that the transaction of acquisition of assets was closely related to the commencement and carrying on of the assessee's business and interest paid on the unpaid balance of the consideration for the assets acquired had, in the normal course, to be regarded as expended for the purpose of the business which was carried on in the accounting periods. In Indian Steel Wire Products Ltd. v. Commissioner of Income-tax, the Calcutta High Court disallowed the contribution made by the assessee to the Indian National Congress, which was a political party in power, for seeking its patronage ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... " in view of the serious damage suffered by the Konkan region due to the recent floods and heavy rains the State Trading Corporation should extend its most sympathetic consideration. After some discussion the Chief Minister agreed to a sum of Rs. 2,00,000 being given by the State Trading Corporation as outright grant and not to press the matter further." This note brings out the " sympathetic consideration " which prevailed with the assessee while making the grant. The payment thus had no connection with the business of the assessee. The Tribunal did notice the assessee's argument that its business would have suffered if this payment had not been made by it. Bat the Tribunal did not notice any material to support it and was unable to give a finding to that effect. The provision of amenities to the labour not of the assessee-Corporation but in the village in general and the development of the port and of the roads in the village were not found to have a connection with the assessee's business. In any case, even if there might have been a connection, it was too remote to be considered as relevant for our purpose. This expenditure, in no case, can be said to be wholly and exclusively ..... X X X X Extracts X X X X X X X X Extracts X X X X
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