1961 (11) TMI 3 - SUPREME COURT

Whether on the facts and circumstances of the case the payment of the sum of ₹ 6,111 made by the assessee under the terms of the agreement entered into with the Director of Industries and Commerce, Madras, on 9th November 1945, was not an item of revenue expenditure incurred in the course of carrying on the business of the assessee and, therefore, allowable under the provisions of section, 10 of the Indian Income-tax Act?

Held that:- This is not a case of so much clay or so much salt-petre or a dump of tailings or leaves on the trees in a forest. The two modes in which the respondent did the business furnish adequate distinguishing characteristics. Here is an agreement to reserve a source, where the respondent hoped to find shells which, when found, became its stock-in-trade but which, in situ, were no more the firm's than a shell in the deepest part of the ocean beyond the reach of its divers and nets. The expenses of fishing shells were its current expenses as also the expenses incurred over the purchase of shells from the divers. But to say that the payment of lease money for reserving an exclusive right to fish for chanks was on a par with payments of the other character is to err.

The rights were not transferable, but if they were and the firm had sold them, the gain, if any, would have been on the capital side and not a realising of the chanks as stock-in-trade, because none had been bought by the firm, and none would have been sold by it. In our opinion, the decision of the High Court, with all due respect, was, therefore, erroneous, and the earlier decision of the Full Bench of the same High Court was right in the circumstances of the case. In the result, the appeal is allowed