TMI Blog1999 (9) TMI 55X X X X Extracts X X X X X X X X Extracts X X X X ..... -70) incurred by the assessee in pursuing its claim against the National Bank of Pakistan before the International Chamber of Commerce was capital expenditure and has to be disallowed in the computation of the taxable income ? Since except for the difference in the amount of expenditure the question in respect of the assessment years 1970-71 to 1972-73 is the same it is needless to set out the question referred in the second set of references. The question referred and the statements of case drawn up by the Tribunal in substance being similar for all six years this judgment will govern all the references. The first set of references (ITRs Nos. 214 to 216 of 1980) relate to the assessment years 1967-68 to 1969-70 and the second set (ITRs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ties between India and Pakistan and prohibitory proclaims/orders by the Pakistan Government cement as stipulated in the sale agreement was not supplied by the PPCIL to the assessee. Since the PPCIL had failed to supply cement in terms of the sale deed the assessee-company filed a claim against the National Bank of Pakistan who had furnished bank guarantees on behalf of the PPCIL for due performance of the said agreement before the International Chamber of Commerce and incurred legal and travelling expenses during the previous years relevant to the assessment years 1967-68 to 1972-73. The Income-tax Officer did not allow the aforesaid expenditure on the ground that these expenses were incurred for realising the capital on sale of the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ereon it is allowable as revenue expenditure, and (ii) the same having been incurred wholly and exclusively for the purpose of the assessee's business it is allowable under section 37 irrespective of the fact whether it is capital or revenue in nature. In aid of the second proposition reliance is placed on a decision of the Allahabad High Court in Saharanpur Electric Supply Co. Ltd. vs Commissioner of Income-tax [1971] 82 ITR 405. On the other hand Mr. Khanna learned standing counsel for the Revenue while supporting the view taken by the Tribunal has contended that the assessee having sold its business in Pakistan long time back the litigation expenses cannot be said to be expenditure incurred by the assessee for the purpose of its busine ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of both the conditions is sine qua non for qualifying for deduction under section 37 of the Act. In this view of the matter we have no hesitation in rejecting the contention of learned counsel for the assessee that whenever an expenditure is incurred in the course of the business it has to be revenue in nature. Section 37 of the Act itself postulates a contingency of an expenditure incurred wholly and exclusively for the purpose of the business to be of capital nature. Even otherwise we also feel that the expenditure in question does not fulfil even the aforesaid first condition. Though the scope and ambit of the expression "for the purpose of business" is very wide and may include expenditure of diverse nature but as observed by the Sup ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le price of the cement which was to be supplied to satisfy the sale consideration of the two factories and therefore the same having been incurred wholly and exclusively for the purpose of the assessee's business are allowable under section 37 is without any merit and we accordingly reject it. Support for this view is lent by a decision of the Bombay High Court in Associated Cement Companies Limited vs Commissioner of Income-tax [1996] 221 ITR 215 where almost a similar claim of the assessee for the expenditure incurred in litigation for determination of sale price of one of its business in Pakistan to the Pakistan Government was held to be not deductible under section 37 of the Act. In our view the ratio of this decision squarely applies t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent which would prove decisive. If the object of making the payment is to acquire a capital asset, the payment would partake of the character of a capital payment even though it is made not in lump sum but by instalments over a period of time. Relying on M. K. Brothers' case [1972] 86 ITR 38 (SC) in J. K. Cotton Manufacturers Limited vs Commissioner of Income-tax [1975] 101 ITR 221 (SC) their Lordships of the Supreme Court formulated certain tests to determine as to when on the facts and circumstances of a particular case the expenses disbursed by an assessee amount to capital expenditure or revenue expenditure. One of the tests so laid down is that the items of disbursement relatable to a fixed asset or capital may be regarded as of capi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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