TaxTMI 
TaxTMI 
1961 (8) TMI 45
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....and such commission on the sales of sugar for such period as the company may determine to such person or due course, the debentures of the value of ₹ 2? lakhs were issued and subsequently allotted. The brokerage of 2?% mentioned above was also paid. As regards the commission on the sales of sugar mentioned above, an agreement was entered into between the assessee company and Jivanchand Ratanchand Motishaw of Bombay on December 28, 1941, that he was to be paid a commission of 4 annas per Bengal maund of sugar sold during the period commencing from January 1, 1941, and ending with December 31, 1961. In respect of the three years to which0 the concerned assessments are made, the commission so paid to the underwriters was ₹ 45,503, ₹ 13,362 and ₹ 40,465 respectively. These amounts were claimed by the assessee as admissible deductions in the respective assessment years. The Income-tax Officer and the Appellate Assistant Commissioner as well as the Income-tax Appellate Tribunal, Hyderabad Bench, disallowed this claim. The assessee filed three applications before the Income-tax Appellate Tribunal to refer to the High Court the question of law which arose out of the....
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....the company hereby agree to pay to the said Motishaw commission at the rate and on the basis of four annas on the sale of every Bengal maund of the company's sugar during the period commencing from the 1st day of January, 1941, and ending with the 31st day of December, 1961." It is on these facts that the assessee claimed the three amounts of ₹ 45,503, ₹ 13,362 and ₹ 40,465 as admissible deductions in respect of the assessments for the three assessment years. The claim of the assessee that these three amounts are admissible deductions is based on section 10, Clause (2), sub-clause (xv), of the Indian Income- tax Act, which is as follows: "10. (2) Such profits or gains shall be computed after making the following allowances, namely: (xv) any expenditure (not being an allowance of the nature described in any of the clauses (i) to (xiv) inclusive, and not being in the nature of capital expenditure or personal expenses of the assessee) laid out or expended wholly and exclusively for the purpose of such business, profession or vocation." The stand taken by the department is that these amounts are in the nature of capital expenditure and that, t....
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....the business is thus acquired or brought into existence it would be immaterial whether the source of the payment was the capital or the income of the concern or whether the payment was made once and for all or was made periodically. The aim and object of the expenditure would determine the character of the expenditure whether it is a capital expenditure or a revenue expenditure. The source or the manner of the payment would then be of no consequence." In the present case, the resolution dated April 15, 1941, of the board of directors of the assessee company shows that the debenture loan of ₹ 2? lakhs was raised for the purpose of repaying the loan to the Central Bank and the share capital of the society as per agreements dated June 29, 1938. If this loan was not raised, the company would have been forced to repay the loan to the Central Bank and the share capital of the society from out of the capital of the assessee company. Thus, it is clear that the debenture loan was raised for acquiring or bringing into existence an asset or advantage for the enduring benefit of the business. Therefore, the expenditure incurred for raising this debenture loan is properly attributab....
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....ese businesses that they look for their earnings. Of course, like other business people, they must have capital to enable them to conduct their enterprises, but their financial arrangements are quite distinct from the activities by which they earn their income. No doubt the way in which they finance their business will or may reflects itself favourably or unfavourably in their annual accounts, but expenditure incurred in relation to the financing of their businesses is not, in their Lordships' opinion, expenditure incurred in the earning of their income within the statutory meaning." In view of this decision, we cannot accept the contention of the learned counsel for the assessee. In Texas Land and Mortgage Company v. Holtham [1894] 3 Tax Cas. 255, the assessee company, in order increase its capital, raised money on debentures and claimed that the expenditure incurred for raising the money ought to be deducted from the profits in a particular year. But, it was held that the amount paid in order to raise the money on debentures, comes off the amount advanced upon the debentures and, therefore, is so much paid for the cost of getting it, could not be deducted. In our opinio....
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....ent, then it is properly attributable to revenue, being in substance a matter of maintenance, the maintenance of the capital structure or the capital assets of the company." Lawrence J. pointed out that, in that case, there was nothing added to the title or taken away and the title of the company to the property has simply been maintained by that payment. This decision, in our opinion, has no bearing on the question to be decided in this case. The decision in Morgan v. Tate & Lyle Ltd. [1954] 26 I.T.R. 195 also does not help the assessee. In that case, the assessee company, engaged in sugar refining, incurred expenses in a propaganda campaign to oppose the threatened nationalization of the industry and that expenditure was claimed by the assessee as an admissible deduction from its profits for income-tax purposes. The House of Lords, by a majority, held that the object of the expenditure being to preserve the assets of the company from seizure and so to enable it to carry on and earn profits, there was no reason in law to prevent the Commissioners from so finding. It was pointed out that: "On the evidence it was not to be assumed that the trade of the company would hav....