TMI Blog1962 (5) TMI 3X X X X Extracts X X X X X X X X Extracts X X X X ..... right. The appeal fails and is dismissed - Appeal (civil) 435 of 1961 - - - Dated:- 3-5-1962 - Judge(s) : S. K. DAS., A. K. SARKAR., M. HIDAYATULLAH., RAGHUBAR DAYAL JUDGMENT The judgment of the court was delivered by HIDAYATULLAH J.--This appeal by the Commissioner of Income-tax, Mysore, on a certificate granted under section 66A of the Indian Income-tax Act, is directed against a judgment of the High Court of Mysore dated September 7, 959, by which the following question referred by the Income-tax Appellate Tribunal, Madras Bench, was answered in favour of the respondent : " Whether there are materials for the Tribunal to hold that the sum of Rs. 2,87,422 aforesaid represents a loss of capital ? " Originally, two ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he matter and to make a report and recommendations. This report was made by the Committee on July 27, 1950, and the whole of the report has been printed in the record of this case. The Oppige bond is not printed, perhaps because it was in Kannada ; but the substance of the terms is given by the Committee and the above description fairly represents its nature. The Committee recommended that the assessee company should ex gratia forgo some of its dues, and in the year of account ending June 30, 1952, the company waived its rights in respect of Rs. 2,87,422. The company claimed this as a deduction under sections 10(2)(xi) and 10(2)(xv) of the Indian Income-tax Act. The Income-tax Officer declined to make the deduction, because, in his opinion, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fore us both under section 10(1) and section 10(2)(xv), though it appears that the case of the assessee company has changed from section 10(1) to section 10(1)(xi) and section 10(1)(xv) from time to time. The question, as propounded, seems to refer to sections 10(2)(xv) and 10(1) and not to section 10(2)(xi). We, however, do not wish to emphasise the nature of the question posed, because, in our opinion, the central point to decide is whether the money which was given up represented a loss of capital, or must be treated as a revenue expenditure. The tax under the head " Business " is payable under section 10 of the Income-tax Act. That section provides by sub-section (1) that the tax shall be payable by an assessee under the head " Profi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in Com missioner of Income-tax v. Chitnavis, and has been accepted by this court. In other words, section 10(2) does not deal exhaustively with the deductions, which must be made to arrive at the true profits and gains. To find out whether an expenditure is on the capital account or on, revenue, one must consider the expenditure in relation to the business. Since all payments reduce capital in the ultimate analysis, one is apt to consider a loss as amounting to a loss of capital. But this is not true of all losses, because losses in the running of the business cannot be said to be of capital. The questions to consider in this connection are : for what was the money laid out? was it to acquire an asset of an enduring nature for the benefi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... deal to be said in favour of the Appellants ... It is impossible to look upon this as an ordinary business transaction of an advance against goods to be delivered ... I can come to no other conclusion but that this was an investment of capital in the Welsh Company, and was not an ordinary trade transaction of an advance against goods ........" The second case, Charles Marsden Sons Ltd. v. Commissioners of Inland Revenue, is under the excess profits duty in England, and the question arose in the following circumstances : An English company carried on the business of paper making. To arrange for supplies of wood pulp, it entered into an agreement with a Canadian company for Supply of 3,000 tons per year between 1917-1927. The English co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch is laid out by persons who are traders, whether it be in the purchase of goods be they traders alone, whether it be in the purchase of raw material be they manufacturers, or in the case of money-lenders, be they pawnbrokers or money-lenders, whether it be money lent in the course of their trade, it is used and it comes out of capital, but it is not an investment in the ordinary sense of the word." It was thus held to be a use of money in the course of the company's business and not an investment of capital at all. These cases illustrate the distinction between an expenditure by way of investment and an expenditure in the course of business, which we have described as current expenditure. The first may truly be regarded as on the ca ..... X X X X Extracts X X X X X X X X Extracts X X X X
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