TMI Blog1955 (5) TMI 15X X X X Extracts X X X X X X X X Extracts X X X X ..... t the assessee had spent the amount. Chamundeswari Bus Service had permits to ply five buses from Kumbakonam to Karaikal. The G permits for these vehicles stood in the name of Balasubramania Pillai. The route permits granted by the Regional Transport Authority, Tanjore, also stood in his name. Of the permits obtained from the French authorities in Karaikal, three stood in the name of Balasubramania, while two stood in the name of Muthuramalingam. It was, however, common ground, that Muthuramalingam had no proprietary interest in the buses or in the transport service. Gnanasambandam claimed that the buses and the route rights belonged to him, and that his brother-in-law Balasubramania as well as Muthuramalingam merely lent their names. Gnanasambandam appears to have been marked down by the authorities as a smuggler. He was in jail in Karaikal during the period relevant for our purposes, March and April, 1944. Raman and Raman Ltd., whose managing director was P.S. Narayana Ayyar, were also bus operators in Tanjore district. On 9th March, 1944, Balasubramania executed an agreement in favour of Raman and Raman Ltd. Balasubramania claimed to be the sole and exclusive owner of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n by the assessee for a review of its order dated 16th August, 1944. The Tribunal was not quite correct in its statement in paragraph 5 of its statement of the case, which implied that the transfer of ownership was recognised by the Central Road Traffic Board on 27th November, 1944. It should be remembered that from 9th March, 1944, it was Raman and Raman Ltd. that were in actual possession of the five buses. On 3rd October, 1944, Veerappa filed O.S. No. 37 of 1944 against Raman and Raman Ltd. among others to establish his title to these five buses and to recover possession of them. On 17th March, 1945, the Court appointed Veerappa receiver of the properties, title to which was in dispute in the suit. As receiver, Veerappa obtained possession of the buses on 26th April, 1945. It is really against this background we have to determine the claim of the assessee, Veerappa, that the expense he incurred during the accounting year in the conduct of this suit could be lawfully deducted by him under section 10(2)(xv) from his assessable income that year. The ultimate result of the litigation cannot and should not affect the determination of this question. To complete the narration, ho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pital expenditure, laid out wholly and exclusively for the purpose of the assessee's business, the transport business he was conducting, what was the nature of the suit in which he spent the money has to be determined first. The Income-tax Officer found: But the suit is against ownership of the suit buses. Though, he (assessee) has paid the value to Gnanasambandam Pillai, the real ownership has yet to be established. As the expenses are spent for the acquisition of the capital asset, they will be treated as capital expenditure. The Assistant Commissioner recorded: The prospect of getting the route permit permanently in his own name was involved in the suit. Hence the very acquisition of the valuable right was involved in the litigation and the consequent legal expenditure. The appellant should have anticipated that the purchase transaction would cost him not only the cash consideration of ₹ 35,001 but also the cost of the litigation. Hence the expenditure incurred is part of the cost of the acquisition of the asset, and, therefore, capital in nature. The Tribunal took a different view. After referring to the finding of the High Court in the appeal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re unable to accept the contention of the revenue authority that the expenditure in this case was incurred for the acquisition of fixed capital assets. The expenditure, as we already stated, did not create any new asset nor did it alter the character of the capital asset that had been acquired by the company (Raman and Raman Ltd.) under the contract. That remained unaltered. The asset, to defend the title to which the expenditure was incurred was an existing asset and was not acquired in consequence of the expenditure. Nor was there any improvement of the capital assets of the company by reason of the litigation. No doubt, Raman and Raman Ltd. were the defendants in that suit. But that did not really affect the question. The test would have been the same had they figured as plaintiffs in that suit. In applying the test to decide whether the expenditure was of a capital or revenue nature, the question whether the assessee who claimed the deduction under section 10(2)(xv) of the Act figured as a plaintiff or as a defendant is immaterial. The ultimate result of the litigation is also irrelevant. That was laid down by the Supreme Court in Commissioner of Income-tax v. Hirjee [1953 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... here was no evidence of thatthat would not support the conclusion that the expenditure was of a capital nature. Spite, whether it was satisfied or not by the contract dated 10th April, 1944, and the litigation that ensued, did not result in any accretion to any of the capital assets of the assessee in his transport business. In our opinion, the finding of the Tribunal, that the expenditure in question was of a capital nature, was not supported by any evidence on record. The main question at issue in the suit was whether it was the title of the assessee, founded on the contract dated 19th April, 1944, or that of the rival claimant Raman and Raman Ltd. based on the earlier contract of 9th March, 1944, that should prevail. The Tribunal never doubted the claim of the assessee that he had paid ₹ 35,001 as the purchase price of the five buses. That was to acquire a capital asset for his business, the transport business. Both parties to the suit bona fide litigated their respective claims of title. In the case of neither of them was the expenditure incurred in conducting the suit of a capital nature. Each party could and did claim that the expenditure was of a revenue nature, inc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hese expenses if they were the successful purchasers and doubtless estimated accordingly the price which they thought it worth their while to bid. Though the Assistant Commissioner of Income-tax was of the view that the assessee should have anticipated that the purchase transaction would cost him not only the cash consideration of ₹ 35,001 but also the cost of the litigation, and that the expenditure incurred was part of the cost of the acquisition of the asset, there was really no basis for that; and that was apparently not the view that prevailed with the Tribunal. Raman and Raman Ltd., it should be remembered, had offered to pay ₹ 31,001; the assessee paid in full ₹ 35,001. Even before the assessee paid that amount, Balasubramania had repudiated the contract dated 9th March, 1944. There was really nothing in the evidence to show that the assessee contemplated a litigation. Certainly there was no basis for holding that any litigation he had to undertake was to perfect a defect in title. The Court could find the claim of the assessee's title good or bad. It was not a case of a partially defective title which could be cured by the litigation. The Tribu ..... X X X X Extracts X X X X X X X X Extracts X X X X
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