Content Provider | Supreme Court of India |
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e-ISSN | 30484839 |
Language | English |
Access Restriction | NDLI |
Subject Keyword | Expenditure by way of investment and expenditure Distinction Indian Income tax act 1922 Income Tax Deduction |
Content Type | Text |
Resource Type | Law Judgement |
Jurisdiction | India |
Case Type | Appeal |
Court | Supreme Court of India |
Disposal Nature | Appeal Dismissed |
Headnote | Income Tax— Deduction—Expenditure by way of investment and expenditure in the course of business—Distinction—Tests applicable—Indian Income-Tax Act, 1922 (11 of 1922), Ss. 1 (1), (2) (xi), 2 (XV).The assessee Company used to purchase sugarcane from the sugarcane growers to prepare sugar in its factory, in which a very large percentage. of shares was owned by the Government of Mysore. As a part of its business operation it entered into written agreements with the sugarcane growers and advanced them seedlings, fertilizers, and also cash. The cane growers entered into these agreements known as “oppige” by which they agreed to sell sugarcane exclusively to the assessee company at current market rates and to have the advances adjusted towards the price. An account of each “Oppigedar” was opened by the company. These agreements were entered into for each crop. In the year 1948-49 due to drought, the assessee company could not work its mills and the “oppigedar” could not grow or deliver the sugarcane and thus the advances made in the year remainded unrecovered. The Mysore Government realising the hardship appointed a committee to investigate the matter and make a report. 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 s. 10 (2) (xi) and s. 10 (2) (xv) but the Income-Tax Officer declined to make the deduction and the appeal before the Appellate Assistant Commissioner also failed. The Tribunal. was also of the opinion that these advances were made to ensure to steady supply of quality surgarcane and the loss, if any, must be taken to represent a capital loss and not a trading loss but the tribunal referred the question thereby arising for the decision of the High Court. The High Court relying upon a decision of this Court in Badridas Daga v. Commissioner of Income-tax held, that the expenditure was not in the nature of a capital expenditure, but was a revenue expenditure and that this amount was deductible in computing the profits of the business for the year in question under s.10(1) of the Income-tax Act. The central point for decision in the present case, was whether the money which was given up, represented a loss of capital or must be treated as a revenue expenditure. Held, that s. 10 (2) does not deal exhaustively with the deductions which must be made to arrive at the true profits and gains. It mentions certain deductions in cls. (i) to (xiv) and if an expenditure comes within any of the enumerated classes of allowance the case has to be considered under the appropriate class. Clause (xv) is a general clause which allows an expenditure to be deducted, if laid out or expended wholly and exclusively for the purpose of such business, which is not in the nature of capital expenditure or personal expenses of the assessee. But the general scheme of the section is that profits or gains must be calculated after deducting outgoings reasonably attributable as business expenditure but not so as to deduct any part of a capital expenditure. To find out whether an expenditure is on the capital account or on revenue, one must consider the expenditure in relation to the business. 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 benefit of the business, or was it an outgoing in the doing of business ? If money be lost in the first circumstance it is a loss of capital, but it lost in the second circumstance, it is a revenue loss. In the first, it bears the character of an investment, but in the second, it bears the character of current expenses. Held, in this case, there was hardly any element of investment which contemplate more than payment of advance price. The resulting loss to the assessee company was just as much a loss on the revenue side as would have been, if it had paid for the ready crop which was not delivered. |
Judge | Honble Mr. Justice M. Hidayatullah |
Neutral Citation | 1962 INSC 194 |
Petitioner | The Commissioner Of Income-tax |
Respondent | The Mysore Sugar Co., Ltd. |
SCR | [1963] 2 S.C.R. 976 |
Judgement Date | 1962-05-03 |
Case Number | 435 |
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