1957 (8) TMI 36 - HC - Income Tax

Summary

Issues Involved:
1. Whether the expenditure of Rs. 62,818 spent by the assessee to train Indian boys as jockeys constituted expenses of the business allowable under section 10(2)(xv) of the Income-tax Act.
2. Whether the expenditure was of a capital nature or revenue nature.

Issue-wise Detailed Analysis:

1. Allowability of Expenditure under Section 10(2)(xv):

Facts and Arguments:
- The Royal Calcutta Turf Club (assessee) spent Rs. 62,818 on a riding school to train jockeys, claiming it as a deductible business expense under section 10(2)(xv) of the Income-tax Act.
- The Income-tax Officer disallowed the claim, arguing that the expenditure was not related to the Club's business of holding race meetings and was, therefore, not a proper business expenditure.
- The Appellate Assistant Commissioner and the Appellate Tribunal upheld the Income-tax Officer's decision, primarily on the grounds that the expenditure was not for earning profits in the accounting year and was an indirect benefit.

Court's Analysis:
- The court found that the Club's expenditure was indeed for the purpose of its business. The Club had a legitimate apprehension about the dearth of jockeys, which could affect its business adversely.
- The expenditure was aimed at safeguarding the Club's business interests by ensuring a future supply of jockeys, thus enabling it to carry on and earn profits.
- The court referenced Lord Davey's words in Strong & Co. v. Woodifield [1906] AC 448, 453, emphasizing that expenditure made to enable a person to carry on and earn profits in the trade is for the purpose of the trade.
- The court also cited Viscount Cave's pronouncement in British Insulated and Helsby Cables Ltd. v. Atherton [1926] AC 205, stating that expenditure made on the grounds of commercial expediency to facilitate the carrying on of the business can be considered as wholly and exclusively for the purposes of the trade.

Conclusion:
- The court concluded that the expenditure was indeed laid out for the purpose of the business, thus rejecting the first ground given by the authorities below for disallowing the claim.

2. Nature of Expenditure: Capital or Revenue:

Facts and Arguments:
- It was contended that the expenditure was capital in nature as it was aimed at creating an asset or advantage of enduring benefit for the Club's business.
- The Income-tax Officer argued that the benefit was of an enduring nature and thus should be considered capital expenditure.

Court's Analysis:
- The court disagreed with the contention that the expenditure was capital in nature. It emphasized that the expenditure was not made once and for all but was a recurring expenditure for running the school.
- The court referenced Viscount Cave's test, which includes the expenditure being made once and for all, with a view to bringing into existence an asset or advantage for the enduring benefit of the trade.
- The expenditure was not for acquiring a capital asset but was a running expense for maintaining the school, which was necessary for the Club's business operations.
- The court also referenced Lord Hanworth's test in Mitchell v. B.W. Noble Ltd. [1927] 1 KB 719, 737, which states that expenditure to enable the business to continue its same course as before and to remove a difficulty is revenue expenditure.

Conclusion:
- The court concluded that the expenditure was of a revenue nature, laid out for the purposes of the Club's business, and not capital expenditure.

Final Judgment:
- The answer to the question referred was in the negative, meaning the expenditure of Rs. 62,818 spent by the assessee to train Indian boys as jockeys did constitute expenses of the business allowable under section 10(2)(xv).

Guha, J.: Agreed with the judgment.