TaxTMI 
TaxTMI 
2014 (5) TMI 75
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....ant with Bombay Port Trust, to it. However, the said transfer did not materialize, and neither was the assessee able to recover the advance of Rs.10 lacs. Finally, the assessee was able to negotiate and deal with one, M/s. Nimesh N. Parikh, selling the said debt to him for Rs.1 lac, resulting in the impugned loss of Rs.9 lacs. The assessee's claim, pressed as a business deduction u/s. 36(1)(vii), was not considered valid by the Revenue as the same did not arise in the ordinary course of its business. The advance could not be said to be incidental to the assessee's trading activity, relying on the decision in the case of A.V. Thomas and Co. Ltd. vs. CIT [1963] 48 ITR 67 (SC), distinguishing the cases relied upon by the assessee, being CIT vs. Mysore Sugar Co. Ltd. [1962] 46 ITR 649 (SC); A.W. Figgis & Co. (P.) Ltd. vs. CIT [2002] 254 ITR 63 (Cal); and CIT vs. Rohtas Industries Ltd. [1979] 120 ITR 110 (Cal) on facts. 3.1 Before us, the assessee argued its case on the basis of the order by the Tribunal in its own case for A.Ys. 1989-90 to 1991-92 (in ITA Nos.5609/93, 219/94 & 220/94 dated 02.09.2002/PB pgs.23-24). The issue before the tribunal was whether the income derived by the a....
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....hand, is not involved directly in that process and remains unaffected by it.' Inasmuch as, therefore, the letting of a building (or part thereof) is not to any one party, or may not necessarily be so, and could be over time to several parties, there is a change of masters, so that the assessee's premises being let must to be regarded as a part of his circulating capital. This fact, it was submitted by the ld. AR, would also cause to distinguish the assessee's case from the decisions in the case of Hasimara Industries Ltd. (supra). Further, reference was drawn by him to the decision in the case of CIT vs. New Delhi Hotels Ltd. [2012] 345 ITR 1 (Del) (at pgs.12 to 19 of the compilation). In the facts of that case the amount advanced for the purchase of property by the assessee, in real estate business, was treated as a deductible business loss. 3.2 The ld. Departmental Representative (DR), on the other hand, would rely on the very same order by the tribunal, i.e., in the assessee's own case for A.Ys. 1989-90 to 1991-92 (supra). The question arising before the tribunal for that year was the head under which the assessee's income on letting a leased property was assessable and, conse....
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....ng would validate our formulation of the issue arising for our adjudication thus, i.e., in the manner done; there being no ambiguity or variation in the principle or the proposition of law involved. The question, thus, turns essentially on the facts of the case. Toward this, it shall be relevant to note the facts and the conclusion arrived at by the hon'ble apex court in some of the cited cases: a) In Mysore Sugar Co. Ltd. (supra): In the facts of that case, the loss was on account of failure of crops of sugarcane growers, to whom money had been advanced by the assessee, a sugarcane manufacturer, for purchase of seedlings and fertilizers, to be adjusted against the supply of sugarcane. The supply was, accordingly, confirmed to be on revenue account and, thus, deductible. b) In A.V. Thomas & Co. Ltd. (supra), the facts and the decision are as under: "The memorandum of association of the assessee company authorised it "to be interested in, promote and to undertake the formation and establishment of other companies", to make investments and to assist any company financially or otherwise. At the material ti....
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....nbsp; c) In Hasimara Industries Ltd. v. CIT [1998] 230 ITR 927 (SC): In this case, the assessee deposited a sum of money with another company under a leave and license agreement, for securing a license under which the assessee could work the licensor's cotton mills. The licensor-company went into liquidation and the amount remained unpaid. On its write off as irrecoverable, the loss was held as non-deductible as a business loss, confirming the decision by the hon'ble high court; the purpose of the deposit being to acquire a profit making asset, so that the loss suffered was on capital account. d) In Hasimara Industries Ltd vs. CIT [1998] 231 ITR 842 (SC): In the facts of this case, again, the assessee in tea business entered into a leave and license agreement with another company with a view to acquire the operating rights for working the latter's cotton mills. A sum of Rs.20 lacs was advanced to the lessor company for modernizing the mill. Neither was the mill modernized, nor the sum repaid. The loss suffered on account of the incapacity of the lessor to repay was held as a capital loss, being for acquiring a profit making apparatus,....
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....y of the lands, buildings, factories, warehouses, theatres, offices buildings and the property rights or privileges of the Company therein." The said clauses fall under Part III-B thereof, titled 'Ancillary Objects'. As such, the said objects are principally by way of enabling provisions, i.e., to facilitate the accomplishment of the main objects for which the company is formed, i.e., to distribute and deal in consumer products, consumer durables, textiles, chemical, engineering, electrical, electronic and mechanical goods. Even if construed as independent objects, as we have seen, it becomes immaterial in the facts of the case as to whether the sub-lease was sought to be acquired for its main objects afore-stated, or for finance and investment, i.e., the business in which the company is engaged in for the time being, or for further letting. Accordingly, the impugned loss is a capital loss and, therefore, not deductible as a business expenditure or business loss. In fact, as would be seen, the facts in the case of A.V. Thomas and Co. Ltd. (supra); Hasimara Industries Ltd. (supra) are strikingly similar to the facts of the assessee's case. Like-wise is the decision in the case of ....
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....al loss, and not a loss arising to the assessee in the ordinary course of and in carrying out its business, as sought to be emphasized before us. 4.4 We may next consider the assessee's reliance on the tribunal's order in its own case for earlier years (supra), holding the rent receipt as arising to it being assessable as business income. We find no correspondence between the two, or of any assistance being able to be derived by the assessee from the said order. Firstly, the 'facts' relied upon by the tribunal in that case was of temporary letting of a building, i.e., the part being considered as surplus by the assessee for the time being and, further, of being accompanied by provision of office amenities for a service charge. This guided the tribunal's decision on the head of income under which the rental income being derived was assessable. The said facts are not known as existing for the current year, for the said decision to apply. Two, equal importantly, even so, the said decision only assists the case of the Revenue. It is the lease rights, a source of income (by way of rent, if not also service charges) which the assessee seeks to secure by acquiring a sub-lease, the assess....