Capital expenditure for distillery licence and non-deductibility of surtax and plant loss under income-tax law

Loss from discarding a milk plant was held not deductible under sections 28 and 45 because it did not fall within those provisions. Surtax payable under the Companies (Profits) Surtax Act, 1964 was also not deductible in computing total income, following the Supreme Court authority cited. The amount paid to obtain a licence to establish and work a distillery was treated as capital expenditure, as the licence secured the right to set up and operate the business itself, and therefore was not allowable as revenue deduction under section 37. The Tribunal's view was sustained on all referred questions.

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Issues: (i) Whether the loss arising from discarding the milk plant was allowable as a deduction under sections 28 and 45 of the Income-tax Act, 1961; (ii) Whether surtax payable under the Companies (Profits) Surtax Act, 1964 was deductible in computing total income; (iii) Whether the sum of Rs. 50,000 paid for obtaining a licence to establish and work a distillery was allowable as revenue deduction.

Issue (i): Whether the loss arising from discarding the milk plant was allowable as a deduction under sections 28 and 45 of the Income-tax Act, 1961.

Analysis: The Tribunal's appreciation of the material showed that the loss claimed on discarding and writing off the milk plant did not fall within the scope of either provision. The record disclosed no error in the Tribunal's reasoning, and the statutory provisions relied upon did not support the assessee's claim.

Conclusion: The issue was answered against the assessee and in favour of the Revenue.

Issue (ii): Whether surtax payable under the Companies (Profits) Surtax Act, 1964 was deductible in computing total income.

Analysis: The point stood concluded by the Supreme Court decision cited to the Court. On that basis, the Tribunal's view that the surtax could not be allowed as a deduction was affirmed.

Conclusion: The issue was answered against the assessee and in favour of the Revenue.

Issue (iii): Whether the sum of Rs. 50,000 paid for obtaining a licence to establish and work a distillery was allowable as revenue deduction.

Analysis: The licence fee was paid under the statutory scheme governing distilleries and breweries, particularly the provisions enabling licensing for construction and working of a distillery and the rules requiring deposit of the licence fee. The fee was incurred to secure the right to establish and work the distillery itself, and the Court treated that outlay as forming part of the capital structure rather than a recurring business expense. It therefore did not qualify as deductible revenue expenditure under section 37.

Conclusion: The issue was answered against the assessee and in favour of the Revenue.

Final Conclusion: All the referred questions were answered in a manner sustaining the Tribunal's view and denying the claimed deductions.

Ratio Decidendi: An expenditure incurred to obtain a licence necessary for establishing and working a distillery is capital expenditure and not deductible as revenue expenditure; losses not falling within the relevant charging or deduction provisions are not allowable.

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