TMI Blog1986 (8) TMI 4X X X X Extracts X X X X X X X X Extracts X X X X ..... detail in the judgment that has been delivered in the assessee's own case being Income-tax Reference No. 100 of 1977: CIT v. Hashimara Industries Ltd. [1989] 175 ITR 477 (Cal). In this reference, the dispute is about the allowability of a sum of Rs. 20,00,000 given by way of advance to Saksaria Cotton Mills Limited for modernisation of its plant. The assessment year involved is 1968-69 for which the previous year ended on March 31, 1968. The assessee advanced a sum of Rs. 20,00,000 to Saksaria Cotton Mills Limited in terms of clause 13 of the leave and licence agreement entered into by the assessee-company with Saksaria Cotton Mills Limited. The agreement originally was for a period of three years from April 1, 1963, to March 31, 1966. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sor whether to do so or not and on such terms as may be agreed to at that time." There is no dispute that the amount was paid for modernisation of the mills. The loan was not repaid by Saksaria Cotton Mills Limited at the expiry of the leave and licence agreement on June 30, 1966. The Tribunal has found that with effect from July 1, 1966, Saksaria Cotton Mills Limited had its own business but suffered loss on account of labour trouble. Ultimately, the mill was closed down on October 18, 1967, and the company went into liquidation on March 12, 1969. In the assessee-company's accounting year which ended on March 31, 1968, the assessee claimed the advance of Rs. 20,00,000 as a deduction on the ground that it had become irrecoverable on acc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat in the resolution, it was clearly stated that the amount was to be treated as capital investment. Before the Tribunal, it was argued on behalf of the department that by making this advance of Rs. 20,00,000, the assessee had acquired an advantage of enduring nature and the claim of the assessee was not allowable as business loss. The amount was spent on the improvement of the mills. It was not advanced in the ordinary course of the assessee's business nor was it incidental to such business. On behalf of the assessee, it was argued that the assessee did not acquire any advantage of an enduring nature. The assessee was only creditor as interest was to be received on the advance and that the advance was made in the normal course of busine ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or unit "on such terms as may be agreed at that time". There is no finding of the Tribunal as to whether the assessee requested Saksaria Cotton Mills Limited to install new plant, machinery and equipment and, if so, the terms on which Saksaria Cotton Mills Limited agreed to install new plant, machinery, equipment, etc. The finding of the Tribunal is that the money was given by way of advance for the specific purpose of modernisation of the cotton mills. The assessee-company, in one way or another, was running the mills since the scheme was approved by the Bombay High Court in the winding up proceedings of Saksaria Cotton Mills Limited. Even before this particular agreement was entered into, the assessee was running the mill either singly o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ny at the time of granting of loan. It cannot be denied from the findings made by the Tribunal that the loan was given for the purpose of the assessee's business. But that by itself is not conclusive. It has to be seen whether the transaction was on capital account or on revenue account. If there is any loss on capital account, that cannot be allowed as business loss. There is a line of cases where it has been held that any loss directly connected with the business operation and incidental to the carrying on of the business of an assessee must be allowed as business loss. This line of decisions was reviewed by the Supreme Court in the case of Ramchandar Shivnarayan v. CIT [1978] 111 ITR 263. If money is embezzled by employees or if mone ..... X X X X Extracts X X X X X X X X Extracts X X X X
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