TMI Blog1991 (3) TMI 7X X X X Extracts X X X X X X X X Extracts X X X X ..... reof in and outside India. It has no other branch in any other country except its head office in the U. K. The assessee-company entered into an agreement dated December 17, 1975, to sell its Coombergram Tea Estate to Messrs. Octavius Steel and Co. Ltd. (for brevity, "OSCL") with effect from January 1, 1975, and it was, inter alia, provided thereunder that all the profits and losses on and from January 1, 1975, shall belong to OSCL. The said sale agreement was rescinded by the assessee. Consequently, the OSCL instituted a suit in the original jurisdiction in this court for specific performance of the said contract (sale agreement dated December 17, 1975) which was decreed by the High Court in favour of OSCL directing the assessee to execute the deed of conveyance of the said tea estate in terms of the agreement. The assessee went in appeal before the High Court (in appellate jurisdiction) against the said judgment and decree of the High Court on the original side. During the pendency of that appeal, parties compromised. A memorandum of settlement dated December 22, 1981, was recorded. In terms of the said settlement, OSCL agreed to forgo and abandon all its claims and rights under t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ar. According to the assessee, the later settlement dated March 10, 1982, agreeing to pay Rs. 10 lakhs to OSCL, was a mere substitution of the original settlement already arrived at. The Tribunal held that the decision in the case of Dalmia Jain and Co. Ltd. [1971] 81 ITR 754 (SC) was based on different facts and was not applicable to the case of the assessee. The Tribunal relied upon Swadeshi Cotton Mills Co. Ltd. v. CIT (No. 2) [1967] 63 ITR 65 (SC) and held that the amount of Rs. 10 lakhs and the expenses of Rs. 1,05,019 incurred in respect of the said litigation was a capital expenditure and not revenue expenditure. The assessee thereafter made an application under section 256(1) of the Income-tax Act, 1961, whereupon the aforesaid questions were referred to this court. It has been submitted on behalf of the assessee that the amount of Rs. 10 lakhs which has been paid to OSCL by way of settlement of all the claims OSCL had under the decree of the High Court was not for acquiring any title to the asset, viz., the tea estate, which was agreed to be sold to OSCL. By reason of the agreement, no title to the immovable property of the tea estate passed to OSCL. The settlement w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ultimately leased out to the assessee. While the assessee was in possession of the Murli Hills as agent of the Government, the Kalyanpur Lime Co., on the basis of an earlier agreement with the Government, filed a suit for specific performance and in the alternative, damages against the Government, impleading the assessee also as a defendant. The suit was resisted by the Government as well as by he assessee. The assessee incurred expenses the sum of Rs. 1,29,994 in resisting the suit, in which ultimately the Supreme Court granted decree for damages, and the question was whether the litigation expenses constituted expenditure laid out wholly and exclusively for the purpose of the business. It was held that the assessee resisted the suit in order to protect its business and not to safeguard its prospects of getting a new lease. It did not initiate the proceedings : it merely defended the claim made against it, The suit was launched against it because of one of its business activities and, therefore, the litigation expenses were revenue expenditure laid out wholly and exclusively for the purpose of the business. Where litigation expenses are incurred by the assessee for the purpose ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e expenditure the assessee did not acquire any asset or enduring advantage and that the assessee was, therefore, entitled to the deduction of the sum of Rs. 10,000 in computing its business income. On a reference it was held, affirming the decision of the Tribunal, that the sum of Rs. 10,000 paid to the landlord was business expenditure entitled to deduction in computing the total income of the assessee. In the case of CIT v. Mohanlal Bros. [1982] 133 ITR 642 (Bom), the assessee-firm, which carried on business in art silk cloth as wholesalers, entered into an agreement with Messrs. G. G. The agreement was in the form of a letter addressed by the assessee to Messrs. G. G., whereby Messrs. G. G. were to act as commission agents of the assessee at an agreed rate. The agreement also purported to create a leave and licence in favour of the assessee in respect of the shop for a period of three years. This agreement was renewed by a fresh one dated June 23, 1955, on similar terms with regard to the rate of commission, etc., but with a change in the duration of the period of the agreement, this time the same being for four years from July 1, 1955, to June 6, 1959. The assessee claimed de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in possession of the shop as sub-tenant right from 1952. The assessee had become a lawful sub-tenant as a result of statutory intervention. It could not be said that the sub-tenancy was created for the first time on the date of the consent decree. Hence, the amount of Rs. 50,000 which was paid by the assessee to Messrs. G. G. could not be said to be an expense in the nature of a capital expenditure. It was an allowable deduction. In the case of Darjeeling Dooars Plantations Ltd. v. CIT [1988] 174 ITR 37 (Cal), the assessee owned and ran a tea estate. In March, 1975, it entered into an agreement to buy the B tea estate from the R company and paid an amount of Rs. 4 lakhs as earnest money. Disputes arose subsequently and some of the shareholders of the R company filed a suit to set aside the sale and the assessee also filed a suit against the R company for specific performance of the contract. The assessee claimed deduction of the sum spent in litigation in the assessment year 1979-80. The Income-tax Officer noted that, in its return, the assessee had stated that the income from the said tea estate was not taxable in its hands as the conveyance for the said tea estate had not been ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... et aside the agreement of sale of the B tea estate was admissible as revenue expenditure for the purpose of the assessee's business ; (ii) that the expenses incurred by the assessee in the suit filed by it against the R company for specific performance of the contract was in the nature of capital expenditure and was not deductible ; (iii) that there was no material to come to the conclusion that the borrowed funds had at all been utilised for making the payment of the said Rs. 4 lakhs. The Tribunal was not justified in remanding the matter to the Income-tax Officer for further investigation to determine as to what extent the borrowed funds had been utilised by the assessee. In any event, the expenditure had been incurred by the assessee in the acquisition of an asset. In the case of Sree Meenakshi Mills Ltd. v. CIT [1967] 63 ITR 207, it was held by the Supreme Court that in order that an expenditure may be admissible as a deduction under section 10(2)(xv), it is not necessary that the primary motive in incurring it must be directly to earn income thereby. I have considered the respective submissions of the parties and the decisions cited from the Bar. It appears that, in the in ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
