TMI Blog1986 (4) TMI 130X X X X Extracts X X X X X X X X Extracts X X X X ..... for supply of equipment and Rs. 6,12,980 was for transport, erection and commissioning, etc. The assessee relased Rs. 9,08,745 along with the purchase order. Ultimately the assessee decided to drop the proposed project. There was dispute between the assessee and Marshaall Sons Co. (Mfg.) Ltd. with regard to the amounts paid. The assessee claimed that it paid 11 lakhs against which only design and documentation were supplied. The other party c laimed that it had incurred Rs. 14,05,893 towards carrying out the order placed by the assessee with them. Ultimately there was a settlment between the two according to which Marshall Co. (Mfg.) Ltd. would refund Rs. 1 lakh to the assessee. Thereafter the assessee-company decided to wirte off the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o. Ltd. [1974] 96 ITR 672 (Guj.), Badridas Daga v., CIT [1958] 34 ITR 10 (SC), Bhau Ram Jawaharmal v. CIT [1971] 82 ITR 772 (All.) and Essen (P.) Ltd. v. CIT [1967] 65 ITR 625 (SC). 3. The learned departmental reprsentative submoiyyref that the order placed with Marshall Co. (Mfg.) Ltd. was to set up a projet and and it is a new activity for the manufacture of powder. Hence, the expenditure incurred is capital expenditure. Since the drawings and designs are not used the expenditure is not allowable as revenue expenditure. In order to get rid of any loss of any capital field the claim cannot be allowed as revenue loss and it can only be capital loss. In reply the learned counsel submitted that though the drawings and designs are not used ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .'s case relied on by the counsel for tha assessee is clearly distinguishable. In that case the assessee had agreed to pay to Jones Shipman pound 1000 for the designs and drawings and technical know-how. The dispute in that case was not with respect to this amount paid by the assessee. the dispute was with regard to the royalty at 5 per cent of the selling price paid on the production of machines. In the instant case we are not concerned with any royalty payment with regard to which alone the above decision has been rendered. The question with regard to the payment for the drawings, designs and technical know-how was not the subject-matter of dispute in that case. Hence that decision has no application. The Full Bench decision of the Karn ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urchase of textile machinery in order to expand its factory. Subsequently, the assessee cancelled those contracts on account of which it paid a sum of Rs. 15,000 and Rs. 20,000 as compensation. On those facts, the Supreme Court held that the payment of furthering, protecting or continuing its business which was to be carried of from day to day and the payment was made with the object of avoiding an unnecessary investment in capital assets and was in the nature of a capital expenditure. In Dalmia Dadri Cement Ltd. v. CIT [1973] 90 ITR 297 (Punj. Har.), the assessee placed an order for a dryer plant for its cement manufacturing business which was, subsequently, cancelled on account of which the assessee had to pay certain amount as compensa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , the loss was not incurred during the course of the carrying on of the business. The loss was incurred for the cancellation of contract on account of the assessee's dropping the proposal to start the crushing complex. Thus, the loss is capital loss as the contract for the acquisition of machinery which is a capital asset is cancelled. Thus, in our view, the lower authorities were perfectly justified in disallowing the claim of the assessee. 8. The above reasoning holds good in respect of Rs. 63,514 also as it is part of Rs. 10,06,145 which the assessee-company decided to write off. Since this amount also relates to the cancellation of the contract it is a capital loss and cannot be allowed as deduction while computing the business income ..... X X X X Extracts X X X X X X X X Extracts X X X X
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