1952 (1) TMI 22 - HC - Income Tax

High Court allows deductions for specific expenses under Indian Income-tax Act

The High Court held that the amounts of Rs. 89,870 and Rs. 24,675 were revenue expenditures and allowable deductions under Section 10(2)(xv) of the Indian ... - Issues Involved:1. Whether the sum of Rs. 89,870 in respect of expenses incurred in opening offices of the bank was an admissible deduction under Section 10(2)(xv) of the Indian Income-tax Act.2. Whether there was any legal justification for treating the amount of Rs. 89,870 as deferred expenditure and spreading it over a period of 20 years.3. Whether charges for advertisement, entertainment, photos, and invitation cards are of a revenue or capital nature.4. Whether a further disallowance of Rs. 41,271-5-6 was legally justifiable without distinctly determining that the amount disallowed does not cover the already disallowed Rs. 10,000.Detailed Analysis:1. Admissibility of Rs. 89,870 as Deduction:The Tribunal initially held that Rs. 89,870 was revenue expenditure but classified it as 'deferred revenue expenditure' and spread it over 20 years. The High Court, however, found no provision in the Act for spreading out the expenditure over a period of twenty years. The Court concluded that if the amount was laid out and expended wholly and exclusively for the purpose of the business and was not in the nature of capital expenditure, the whole amount was allowable under Section 10(2)(xv) of the Act. Thus, the Court answered in the negative, stating there was no legal justification for spreading out the sum of Rs. 89,870 over twenty years.2. Legal Justification for Deferred Expenditure:The High Court examined whether the sum of Rs. 89,870 could be spread over twenty years. It was noted that the Commissioner could not find any provision in the Act supporting this. The Court concluded that if the expenditure was not of a capital nature, it should be deductible in the year it was incurred. Therefore, the Court found no legal justification for treating the amount as deferred expenditure and spreading it over twenty years.3. Nature of Advertisement, Entertainment, Photos, and Invitation Cards Expenses:The Court examined the nature of expenses amounting to Rs. 24,675, which included advertisement, entertainment charges, invitation cards, and photographs. It was determined that these expenses were incurred wholly and exclusively for the purpose of the business. The Court noted that the mere fact that the benefit of these expenses extended beyond one year did not change their nature from revenue to capital expenditure. The Court referenced several cases, including *Atherton v. British Insulated and Helsby Cables Ltd.*, and concluded that the expenses did not produce any new asset but were incurred for expanding the existing business. Thus, the Court held that these expenses were of a revenue nature and deductible under Section 10(2)(xv) of the Act.4. Further Disallowance of Rs. 41,271-5-6:The Tribunal had disallowed a further sum of Rs. 41,271-5-6 without distinctly determining whether this amount included the already disallowed Rs. 10,000. The High Court clarified that the Tribunal had referred the first two questions and disallowed the third. The Court did not find it necessary to delve deeper into this issue, given the conclusions on the other points.Conclusion:The High Court concluded that both sums of Rs. 89,870 and Rs. 24,675 were in the nature of revenue expenditure and admissible deductions under Section 10(2)(xv) of the Indian Income-tax Act. The assessee was entitled to its costs, assessed at Rs. 500. The reference was answered accordingly.