TMI Blog1997 (9) TMI 5X X X X Extracts X X X X X X X X Extracts X X X X ..... in holding that the loss of ₹ 20 lakhs which had been deposited by the assessee with Saksaria Cotton Mills Ltd., pursuant to clause 17 of the said agreement, arose in the carrying on of the assessee's business and was incidental to it and was accordingly allowable as a business loss? The High Court noted the facts found by the Tribunal, as under : The assessee is a public limited company. It owned several tea estates and its main income was from sale of tea. Devenport and Co. (P) Ltd., are the managing agents of the assessee. In 1960, the assessee altered its memorandum of association with the approval of the Calcutta High Court for the purpose of diversifying its activities and it took cotton business in addition to its business in tea. Saksaria Cotton Mills Ltd. was also a public limited company and in 1957, it was in the process of liquidation. The assessee, along with one Sri S. L. Bajoria, a shareholder of Devenport and Co. (P.) Ltd., produced a scheme which was approved by the High Court and the liquidation proceedings came to an end. The assessee and Sri S. L. Bajoria entered into an agreement for the lease of the mills from Saksaria Cotton Mills Ltd. There ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of incapacity of Saksaria Cotton Mills Ltd. to pay the same. The assessee claimed these amounts as deductions by way of bad debts. The Income-tax Officer disallowed the assessee's claim for deduction of the said amount of ₹ 20 lakhs holding that it was capital expenditure. The Appellate Assistant Commissioner reversed that view and the Income-tax Appellate Tribunal affirmed the decision in first appeal. The High Court, in reference, in the judgment under appeal before us, disagreed with the Tribunal. The High Court said that there could be little doubt, having regard to the nature of the agreement, that the amount of ₹ 20 lakhs was deposited for the purpose of securing the contract under which the assessee had acquired the right to work the mills belonging to the licensor company. In other words, the assessee acquired a profit-making apparatus. The deposit was made for the purpose of acquisition of a profit-making apparatus. It did not make the assessee a trade creditor of the cotton mills company; also, that it found it difficult to accept the contention that the deposit was made in the course of the day-to-day business of the assessee. The assessee was no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s made as aforestated had been lost to the assessee by reason of the winding up of the licensor company and it had rightly claimed that loss as a business loss, for its business in cotton had suffered that loss. Learned counsel referred to the judgment of this court in Empire Jute Co. Ltd. v. CIT [1980] 124 ITR 1. This court drew attention to the tests for distinguishing between capital and revenue expenditure and observed that no test was paramount or conclusive. Lord Cave, L. C. in Atherton v. British Insulated and Helsby Cables Ltd. [1925] 10 TC 155, 192 (HL) had said : . . . when an expenditure is made, not only once and for all, but with a view to bringing into existence an asset or an advantage for the enduring benefit of a trade, I think that there is very good reason (in the absence of special circumstances leading to an opposite conclusion) for treating such an expenditure as properly attributable not to revenue but to capital. Lord Radcliffe, in Commissioner of Taxes v. Nchanga Consolidated Copper Mines Ltd., [1965] 58 ITR 241 (PC), had observed that what was material to consider was the nature of the advantage in a commercial sense and it was only where the ad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... true character of the deposit. One suggestion is that the deposit should be looked upon as the purchase price of goods paid to the company in advance and thus a mere trading expense; but this cannot be accepted. It would be a highly inaccurate statement of the effect of the agreement. The ₹ 50,000 was doubtless laid out with a view to earning profits in the business of organising agents in addition to the interest of 7 per cent., but it was not so laid out with reference to any particular transaction carried out in the course of such business. It was in one aspect a loan made to the company but it was not a loan made in the course of carrying on the business of organising agents or in the course of the business of a money-lender. It was not a recurring expenditure. On the other hand, it was contemplated that in whole or in part the deposit should be returned to the assessees by the receipt of deposit from selling agents; so that if the ₹ 50,000 does fall to be regarded as invested in a business of organising agents, it was invested with a prospect that it might be a temporary investment and not a permanent one---in other words that the capital might later be withdrawn f ..... X X X X Extracts X X X X X X X X Extracts X X X X
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