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TMI Blog1973 (8) TMI 6X X X X Extracts X X X X X X X X Extracts X X X X ..... urrant, Architects, for the preparation of the plan for construction of the building. The assessee claimed this to be revenue expenditure, but the Income-tax Officer rejected this claim. The second item relates to the payment by the of a sum of Rs. 2,00,000 to the Maharastra Government as grant for the development of the port of Redi. This payment was claimed as part of the total expenditure incurred for facilities to labourers, so as to improve the business of the assessee-company. The Income-tax Officer disallowed the claim, as he considered the payment to be in the nature of a loan in the beginning and also because, he was of the view that it was not for any specific purpose connected with the assessee's business. In appeal, the Appellate Assistant Commissioner also disallowed the payment to the architects on the ground that the assessee was not engaged in the business of construction of buildings and that, in any case, such an expenditure would be of capital nature. The claim for Rs. 2,00,000 was disallowed as the payment was held to be not in any way connected with the business activities of the assessee, nor could it be said to be connected with the purchase of iron ore. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... use it to acquire the concern ". (2) Expenditure may be treated as properly attributable to capital when it 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 trade : vide Viscount Cave L. C. in Atherton v. British Insulated and Helsby Cables Ltd. In other words, the asset or the right acquired must have enough durability to justify its being treated as a capital asset. (3) Whether for the purpose of expenditure, any capital was withdrawn, or, in other words, whether the object of incurring expenditure was to employ what was taken in as capital of the business. Whether the expenditure incurred was part of the fixed capital of the business or part of its circulating capital. Fixed capital is what the owner turns to profit by keeping it in his own possession. Circulating or floating capital is what he makes profit of by parting with it or letting it change masters. Circulating capital is capital which is turned over and in the process of being turned over, yields profit or loss. Fixed capital, on the other hand, is not involved directly in that process and remains unaffected by it. The expression "once ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... income, merely because the proceeding had failed, if otherwise the expenditure is laid out for the purpose of the business wholly and exclusively..." In the present case, there is no suggestion that the proposed building for which the plans were prepared was not for the assessee's business. The said plans were for the assessee's building and the expenditure incurred for preparing them was laid out for the purpose of the business, wholly and exclusively. The objection of Mr. Sharma that the building never came into existence and the project was abandoned is, therefore, ill-founded. The expenditure was incurred in order to acquire a benefit of enduring nature and was, therefore, clearly of capital nature. Question No. 1, accordingly, is answered in the negative, i.e., in favour of the revenue and against the assessee. Taking up the second question, it is necessary to find out the proper connotation of the expression "for the purposes of business". This expression occurs in section 10(2)(xv) of the Indian Income-tax Act, 1922, under which, while computing the profits or gains of business, profession or vocation, the expenditure which will be allowed as a permissible deduction, must ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd the said amount should not be regarded as an expenditure laid out wholly and exclusively for the purpose of the assessee's business. While considering the true connotation of the expression "for the purpose of business", the Supreme Court in the case of Malayalam Plantations examined the case law on the subject, both in England and in India. Broadly, the true tests applied by the English courts were found to be : (i) whether the expenditure was incurred for the purpose of carrying on of the business and for removing obstacles and impediments in the conduct of the business; and (ii) whether the assessee paid the amount in his capacity as businessman or in his personal capacity. Examining the Indian decisions, reference was made, amongst other cases, to Tata Sons Ltd. v. Commissioner of Income-tax, where the share of bonus voluntarily paid by a company not to its own officers, but to some of the officers of a managed company, was held to be a permissible deduction, as the object was said to be to increase the profits of the managed company and thereby increase its own share of the commission. Another case considered was Commissioner of Income-tax v. Royal Calcutta Turf Club, w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f Income-tax, the Calcutta High Court disallowed the contribution made by the assessee to the Indian National Congress, which was a political party in power, for seeking its patronage for the preservation and furtherance of their business. The connection between expenditure and the business, even if any, was considered to be too remote. In Orissa Cement Ltd. v. Commissioner of Income-tax, this court allowed the legal charges incurred for obtaining a loan from the Industrial Finance Corporation as permissible expenditure on the ground that it was irrelevant to consider the object with which the loan was obtained. It was observed that expenditure incurred need not directly benefit the business, yet it must be incidental to the business and must be necessitated or justified by commercial expediency. It must be directly or intimately connected with the business and must be laid out by the taxpayer in his character as a trader. An expenditure remotely connected with the trade was held to not qualify for permissible deduction. In Commissioner of Income-tax v. Bhanna Mal & Co. P. Ltd., the expenses incurred towards salary of a pujari for invoking the blessings of Gods for the benefit of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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