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TMI Blog1962 (4) TMI 125X X X X Extracts X X X X X X X X Extracts X X X X ..... tion which has been referred to this court for opinion is: "Whether on the facts of the case the payment of compensation amounting to ₹ 35,000 has been rightly disallowed as capital expenditure within the meaning of section 10(2)(xv) of the Income-tax Act, 1922?" The facts giving rise to the reference are: The assessee is a public limited company carrying on the business of manu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... emanded a sum of ₹ 15,000, as compensation and M/s. A.N. Sanyal & Sons demanded a sum of ₹ 20,000 for cancellation of the contracts. The assessee paid both these sums of monies and claimed the total amount of ₹ 35,000 as an admissible deduction under section 10(2)(xv). The claim was disallowed by the income-tax authorities and the disallowance was confirmed by the Income-tax Appe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... w the Tribunal relied upon the decision in "Countess Warwick" Steamship Co. Ltd. v. Ogg [1924] 8 Tax Cas. 652. In this case the assessee company owned one ship and it contracted for the construction and purchase of another ship for the sum of £226,000 payable as to £30,000 on the signing of the contract and as to the balance by instalments as the building of the ship progress ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y to the carrying on of the business of the assessee company. The point may be strikingly illustrated by reference to another English case, Short Bros. Ltd. v. Commissioners of Inland Revenue [1927] 12 Tax Cas 953. In this case the assessee whose business it was to build steamers contracted to build two steamers. Subsequently it agreed to the cancellation of the contract in consideration of the pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n expenditure is related to the actual carrying on of the business of an assessee, its nature is that of income or revenue; whereas if it is related not to the actual carrying on of the business but to the means of carrying on a business it may partake of the nature of capital. Accordingly the view taken by the Tribunal was correct and the question referred to this court should be answered in the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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