TMI Blog1998 (11) TMI 102X X X X Extracts X X X X X X X X Extracts X X X X ..... e circumstances of the case and in law, the Tribunal was justified in directing the Income-tax Officer to recompute the capital employed in the industrial undertaking according to the decision of the Special Bench of the Tribunal in the case of Amar Dye-Chem Ltd. 'by ignoring the liabilities', for the assessment years 1966-67 and 1967-68 ? 3. Whether, on the facts and in the circumstances of the case and in law, the Tribunal was justified in directing the Income-tax Officer to add the cost of purchasing old looms for the purpose of depreciation in respect of the new machinery, for the assessment years 1966-67 and 1967-68 ? 4. Whether, on the facts and in the circumstances of the case and in law, the Tribunal was justified in allowing the loss of Rs. 18,358 and Rs. 32,600 for the assessment years 1966-67 and 1967-68, respectively, which were incurred on the sale of the Government securities ? 5. Whether, on the facts and in the circumstances of the case and in law, the Tribunal was justified in holding that the rebate under section 2(5)(a)(i) of the relevant Finance Act should be calculated by including in the export turnover the amounts representing the drawback of customs du ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... against M/s. Kutty Industrials for the preservation of its capital asset, namely, contractual right ? 13. Whether, on the facts and in the circumstances of the case, the Tribunal ought to have allowed the deduction of legal expenses of Rs. 11,000 incurred in connection with Bhiwani Textile Mills for the assessment year 1966-67 ? 14. Whether, on the facts and in the circumstances of the case, the Tribunal ought to have allowed the deduction of Rs. 26,555 being a trading loss due to devaluation of the rupee ? 15. Whether, on the facts and in the circumstances of the case, the Tribunal erred in holding that an amount of Rs. 13,250 deducted by the company from the deposits and/or salary of ex-employees for breach of the terms and conditions of the employment was liable to tax, for the assessment year 1966-67 ? 16. Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the expenditure incurred by the assessee in acquiring import entitlements during the accounting year was not allowable as a business expenditure for the assessment year 1967-68 ? So far as question No. 2 is concerned, Mr. R. V. Desai, learned counsel for the Revenu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... troversy therein stands concluded by the decisions of this court in CIT v. Ghatkopar Estate and Finance Corporation (P.) Ltd. [1989] 177 ITR 222 (Bom) and Ferro Alloys Corporation Ltd. v. CIT [1992] 196 ITR 406, in favour of the Revenue. Following the same, we answer question No. 7 in the affirmative, i.e., in favour of the Revenue and against the assessee. So far as question No. 8 is concerned in view of the decision of the Madhya Pradesh High Court in the assessee's own case reported in Gwalior Rayon Silk Manufacturing (Weaving) Co. Ltd. v. CIT [1988] 173 ITR 126, this question is not pressed. It is, therefore, returned unanswered. Learned counsel for the parties are agreed that the controversy in question No. 9 stands concluded in favour of the Revenue by the decision of the Supreme Court in Smith Kline and French (India) Ltd. v. CIT [1996] 219 ITR 581. Following the same, we answer question No. 9 in the affirmative, i.e., in favour of the Revenue and against the assessee. Mr. Mehta, learned counsel for the assessee, stated before us that the assessee does not want to press questions Nos. 11, 12 and 13. He further submitted that in view of the smallness of the amount invol ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cost of Rs. 75 lakhs to land account and credited the outstanding price of Rs. 60 lakhs to vendors account in the accounts for the year ended March 31, 1966. The assessee-company had undertaken a phased programme of developing the land into an industrial plantation and had already completed planting of eucalyptus in about 10,000 acres. However, in the year 1971, the Government of Kerala passed an Ordinance by which all private forests including the area purchased by the assessee were nationalised. Up to the date of nationalisation, the company had incurred an expenditure of Rs. 53,68,571 in planting and maintaining the eucalyptus trees. This expenditure was shown under the head "Stock-in-trade-Eucalyptus Nursery and Plantation". On the nationalisation of the forests, the assessee did not receive any compensation. The total expenditure incurred including the purchase price amounted to Rs. 1,27,73,879. This loss was debited to the profit and loss account of the pulp division for the year ended March 31, 1972, relevant to the assessment year 1972-73. This amount was allowed by the Revenue as a business loss. As observed earlier, the unpaid price of land carried interest. During the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessee for the purposes of its business. It was, therefore, contended by the assessee that the interest payable on the unpaid price of the land and the bank guarantee commission payable in respect of borrowing were allowable as revenue deduction, The Tribunal accepted this contention of the assessee. The Tribunal held that the purchase of private forests with standing trees was for the purposes of the staple fibre unit of the assessee and hence interest and bank charges (bank guarantee commission) on the unpaid purchase price would have to be allowed as deduction, In arriving at the above conclusion, the Tribunal also took into account the fact that the ultimate loss suffered by the assessee on nationalisation of the forest land had been allowed by the Revenue as a business loss. The Tribunal, therefore, held that the assessee was entitled to claim deduction in respect of interest and bank charges (bank guarantee commission) for the two years under reference. Not satisfied with this finding of the Tribunal, the Revenue is before us by way of reference of question No. 1. Mr. R. V. Desai, learned counsel for the Revenue, submits that the decision of the Supreme Court in Challa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hether a particular expenditure is revenue expenditure incurred for the purpose of the business must be viewed in the larger context of business necessity or expediency. If the outgoing or expenditure is so related to the carrying on or conduct of the business that it may be regarded as an integral part of the profit-earning process and not for acquisition of an asset or a right of a permanent character, the possession of which is a condition to the carrying on of the business, the expenditure may be regarded as revenue expenditure. In Bombay Steam Navigation Co. (1953) (Pte) Ltd. v. CIT [1965] 56 ITR 52 (SC), controversy before the Supreme Court was whether interest paid by the assessee on the balance of consideration due from the assessee for the purchase of an asset to the vendor was a revenue expenditure. In that case, the assessee had agreed that the asset of the value of Rs. 81,55,000 be taken over by the assessee-company from the vendor (Scindias). A part of the consideration was satisfied by allotment to the Scindias of 29,900 shares fully paid up face value of Rs. 100 each in the share capital of the assessee-company and the balance was to be repaid with interest at the ra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on therewith it incurred an expenditure of Rs. 84,633 towards the stamp duty and claimed it as a business expenditure. The Supreme Court held that the amount spent was laid out or expended wholly and exclusively for the purpose of the assessee's business and was not in the nature of capital expenditure and was, therefore, allowable as a deduction in the computation of the income of the assessee. The Supreme Court observed : "A loan is a liability and has to be repaid and, in our opinion, it is erroneous to consider a liability as an asset or an advantage..." The Supreme Court summed up its opinion as under : "(a) The loan obtained is not an asset or advantage of an enduring nature ; (b) that the expenditure was made for securing the use of money for a certain period ; and (c) that it is irrelevant to consider the object with which the loan was obtained." The controversy in Challapalli Sugars Ltd. v. CIT [1975] 98 ITR 167 (SC) was regarding allowability of deduction of interest paid before the commencement of production on the amounts borrowed by the assessee for the acquisition and installation of plant and machinery. It was in that context that the Supreme Court held t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... loss incurred by the assessee on the sale of Government securities. The material facts giving rise to this question are as follows : The assessee had purchased certain Government securities. They were sold during the accounting year under consideration. On sale, the assessee had incurred a loss of Rs. 32,600, in the staple fibre division and Rs. 18,358 in the pulp division in the accounting year ended March 31, 1966. In the next year, the loss amounted to Rs. 77,857. The assessee claimed this loss as an allowable deduction in the computation of its income. The contention of the assessee before the Income-tax Officer was that the Government securities were purchased by them under compulsion exerted by various Government authorities with whom the company had to deal. Since the Government securities did not yield a good return, they were sold off immediately. According to the assessee, the purchase of Government securities was only to satisfy the Governmental authorities. The claim of the assessee was rejected by the Income-tax Officer and the Appellate Assistant Commissioner on the ground that there was no evidence to show that the assessee was compelled to purchase the Government ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... machinery. In acquiring the import entitlements of Rs. 10 lakhs, the assessee had to pay a premium of Rs. 2,95,000. However, when the assessee approached for permission to import spare parts, they ran into difficulties. The Government advised them that except for a small amount towards import of reprocess spinners, it would not be possible for them to allow import of essential spares of rayon plant under that scheme. In view of this position, the import entitlements purchased by the assessee became useless. The assessee attempted to get the licences revalidated for a further period but was unsuccessful. The assessee thereupon thought it fit to write off the premium of Rs. 2,95,000 paid in the previous year relevant to the assessment year 1970-71. The assessee claimed deduction of this amount in computing its income. There is no serious dispute about the fact that the amount is allowable as a deduction. The only controversy is about the year in which the deduction could be allowed. The Tribunal was of the opinion that even if this amount is to be allowed as deduction, it would be allowed in the year 1970-71 in which year it is written off and not in the assessment year 1967-68. W ..... X X X X Extracts X X X X X X X X Extracts X X X X
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