TaxTMI 
TaxTMI 
2000 (10) TMI 7
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....loss of Rs.2,00,000 claimed by the assessee, as capital loss?" The factual position giving rise to the reference is as follows: The assessee, a public limited company, during the relevant period carried on business in the purchase and export of industrial alcohol, bulk handling and storage of liquid chemicals and acted as agents of the State Trading Corporation of India (in short "the Corporation") for storage and handling of their vegetable oils. For the assessment year 1973-74, relating to the previous year ending on September 30, 1972, the assessee disclosed a net income of Rs.3,70,840. It claimed a sum of Rs.2,93,876 as bad debts written off in respect of the amounts due from Digvijay Spinning and Weaving Co. Ltd. (in short "Digvijay....
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....sp; (ii) Opening debit balance in running account with Digvijay: (a) Amount due on account of business transactions 48,150 (b) Interest charged at 10 per cent. per annum ....
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....; 2,93,876 &nbs....
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.... revenue nature and therefore it did not satisfy the requirements of a bad debt. He confirmed the Assessing Officer's view that the loss was capital in nature. The assessee carried the matter in further appeal before the Tribunal. Referring to various clauses of the agreement, the Tribunal held that the amount in question was a capital loss and not a business loss. On being moved for reference as aforestated question, as set out above, has been referred for opinion. There is no appearance on behalf of the assessee in spite of notice. We have heard learned counsel for the Revenue. We find that in various clauses of the relevant agreement, i.e., the agreement dated February 27, 1967, an indication is given as to the nature of the amount i....
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....so that if the Rs.50,000 does fall to be regarded as invested in a business of organising agents, it was invested with a prospect that it might be a temporary investment and not a permanent one-in other words that the capital might later be withdrawn from the business. The question in such a case as the present must be 'what is the object of the expenditure?' and it must be answered from the standpoint of the assessees at the time they made it-that is, when they were embarking upon the business of organising agents for the company. The deposit was clearly exacted by the company as a condition of the assessees being given an agency which they hoped to manage profitably. Their Lordships think that the purpose of being permitted to engage in s....
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.... (KB) and Reid's Brewery Co. Ltd. v. Male [1891] 3 TC 279 (QB), the Supreme Court further observed as follows at pages 654 and 655 of the reports: "These cases illustrate the distinction between an expenditure by way of investment and an expenditure in the course of business, which we have described as current expenditure. The first may truly be regarded as on the capital side but not the second". In Ramchandar Shivnarayan v. CIT [1978] 111 ITR 263, the Supreme Court summed up the principles in the following words at page 269 of the reports: " The principle applicable in India is more or less the same. If there is a direct and proximate nexus between the business operation and the loss or it is incidental to it, then the loss is deductib....