TMI Blog1963 (4) TMI 85X X X X Extracts X X X X X X X X Extracts X X X X ..... 377; 6,017 mentioned in the first question. Therefore, this court is not called upon to answer the second question and the second part of the first question. The result is that the only question for answer by this court is: Whether on the facts and in the circumstances of the case, the sum of ₹ 4,680-13-0 could be claimed as a revenue expenditure in the year of account? The question raised is short, interesting and troublesome. Before dealing with this question the relevant facts on which this question arises may be stated briefly. The assessment year is 1951-52, corresponding to the previous calendar year 1959. The assessee-company was the lessee of a jute mill situated at Ellore, belonging to Srikrishna Jute Mills Limited of Ellore. For the first time the lease of the jute mill was procured by the assessee company in 1944 for a period of five years. On the expiry of the first five years in 1949 that lease was renewed for a further period of five years by a deed dated the 16th March, 1950. This lease of the 16th March, 1950, was an ill-fated lease. A dispute arose between the lessor and the assessee-company regarding the validity of this lease. The board of dire ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is lease was of a capital nature. The Tribunal therefore refused to allow the assessee's claim for deduction of this amount of ₹ 4,680-13-0 in the computation of the assessee's income. The assessee claims this sum of money as legal expense or rather expenses for stamp duty on a document which proved ineffective in securing any asset. It claims to deduct the sum under section 10(2)(xv) of the Income- tax Act which provides for an allowance, inter alia: any expenditure (not being an allowance of the nature described in any of the clauses (i) to (xiv) inclusive, and not being in the nature of capital expenditure or personal expenses of the assessee) laid out or expended wholly and exclusively for the purpose of such business, profession or vocation. In order to avail of this allowance it is essential that the expenditure on this account must not be in the nature of capital expenditure. The assessee puts his case simply on this ground by saying that this stamp duty n an ineffective lease could not be said to be an expenditure in the nature of capital expenditure for the simple reason that this lease failed to procure any capital asset and an expenditure which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be traced to the following celebrated remarks of Viscount Cave L.C. in the decision of the House of Lords in British Insulated and Helsby Cables v. Atherton [1926] A.C. 205, 213-214: But 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. This classic observation started a whole train of cases on this branch of the law and the famous expression with a view to in the above passage made the courts and judges think that so long as the view was there it was enough and it really did not matter whether the view ultimately materialised or not. Once a view was there to secure a capital, no matter whether the capital in fact was acquired or not, the view or idea will stamp it as capital expenditure. This court should have thought that the Income- tax Act was not an Act to tax ideas or views which were not executed into overt acts such as acquisition of a capital or i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ell v. Savill Brothers Ltd. [1901] 4 Tax Cas. 430 and Pyrah v. Annis Co. Ltd. [1956] 37 Tax Cas. 163; [1957] 31 I.T.R. 517 (Ch. D.); [1958] 33 I.T.R. 604 (C.A.) already cited above. It will be necessary therefore to examine these authorities. In Southwell v. Savill Brothers Ltd. [1901] 4 Tax Cas. 430 certain brewers claimed to deduct sums paid for call of licences and other expenses of unsuccessful applications for new licences in arriving at profits for assessment. It was held there that such deductions were not admissible. At page 433 of that report, Kennedy J. observed as follows [1901] 4 Tax Cas. 430: It has seemed to me from the very first very difficult to see how the nature (so far as taxability is concerned) of an expenditure can be different when it turns out that they do not get a profitable investment of that sum of money, instead of it representing capital in future years, it does not represent capital, but the nature of it as an investment of money seems to me not to be altered. Phillimore J., who agreed with Kennedy J., in a separate judgment, at page 434, observed as follows [1901] 4 Tax Cas. 430: Why is it not the same thing if he applies those su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r authority against the contention of the assessee is Pyrah v. Annis Co. Ltd. [1956] 37 Ta? Cas. 163; [1957] 31 I.T.R. 517 (Ch. D.); [1958] 33 I.T.R. 604 (C.A.) This case really proceeded on the fact that the expenditure was incurred in an attempt to improve the capital position of the company and therefore it was accordingly not allowable as a deduction for computing profits for taxation purposes. There the respondent-company in 1939 held a public carrier's licence for seven rigid tipper vehicles and subsequently certain changes took place in the number and type of vehicles licensed. In 1952 the company applied to the licensing authority to vary its then existing licence which was for four articulated vehicles, by the inclusion of further three articulated vehicles. The company's application was refused and its appeal to the Transport Tribunal was dismissed. The company incurred legal costs, ? 1,272, on the application and the appeal. The assessee claimed to deduct this but was disallowed and the taxing authority's decision was upheld both by Vaisey J. as well as by the Court of Appeal in England. At page 169 of the report, Vaisey J. observed as follows [1956] 37 Tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... takes the case of the assessee-company out of section 10(2)(xv) of the Income-tax Act, because no expenditure can be claimed under that clause which is of a capital nature. Mr. Pal, appearing for the taxing authorities, has relied on this last observation to say that so long as the purpose or the view to acquire capital asset was present, there was an end of the matter and any expenditure for that purpose, whether it ultimately produced capital or not, must be regarded as in the nature of capital expenditure. I shall cite one more decision to conclude the list of citations to show how strongly entrenched is this doctrine. It is the decision of the English Court in Collins v. Joseph Adamson Co. [1937] 21 Tax Cas. 400; [1939] 7 I.T.R. 92, 99, where, at pages 408-9, Lawrence J. noticed and observed as follows: The Solicitor-General also referred to the case of Southwell v. Savill Brothers Ltd. [1901] 4 Tax Cas. 430, where it was held that money spent by a brewery company in unsuccessfully attempting to get more brewery licences was equally a capital charge as in cases where the money was spent successfully for that purpose. It was argued for the Crown that that shows t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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