TaxTMI 
TaxTMI 
1977 (8) TMI 23
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....nment Loan Bonds was an admissible deduction ?" The assessee is a registered firm mostly carrying on business in supply of machineries to Government departments. The relevant years of assessment are 1968-69 and 1969-70. The short facts relevant to appreciate the point raised are these : The State Government of Orissa decided to give preferential treatment in the matter of placing of orders for supply of materials to parties holding State Government Loan Bonds. On September 14, 1966, the Chief Engineer of the Rural Engineering Organisation wrote a letter to the assessee that since it had agreed to subscribe Rs. 5,00,000 for investment in State Government Loan Bonds, 1978, orders for supply of 100 MECE brand Hand Road Rollers-3 tons of bal....
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.... of materials. He further relied on the fact that the advance was not utilised for the purpose of purchasing Government Loan Bonds and the loan taken from the bank was more for the purposes of investment than for purposes of business. He further found that the assessee had not received any interest on the loan bonds and payment of interest to the bank was not admissible in view of s. 19 of the Act. The assessee carried further appeals to the Appellate Tribunal and maintained that the letter of the Chief Engineer clearly indicated about the preference and the investment in Government Loan Bonds had been made as a measure of commercial expediency and for boosting up business. The Tribunal found as a fact that the loan taken from the bank h....
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....ted by the department and, on the facts narrated above, we hold that the purchase of Government Loan Bonds was directly connected with and was an integral part of the business activity of the appellant in supplying its products to the Government..." Learned standing counsel contends relying on the condition mentioned in the letter of the Chief Engineer that the advance was to be fully utilised in the purchase of the State Loan Bonds ; that it was not open to the assessee to extend accommodation to its sister concern in breach of the condition and without charging interest in its turn take a loan from the bank and pay interest for it and yet claim payment of interest by it to the bank as a deduction. Reliance is placed in support of such ....
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.... It was next contended that the loan bonds having been encashed before the due date and no interest having been earned thereon, the deduction claimed is not admissible. In support of such a proposition, reliance is placed on a Bench decision of the Kerala High Court in the case of Catholic Bank of India Ltd. v. CIT [1967] 64 ITR 514. In the Kerala case, loss incurred by the assessee-bank in obtaining repayment of amounts covered by Treasury Savings Certificates before the expiry of the period for which the certificates had been issued was under consideration and the court was of the view that such a loss was of capital nature and was not allowable. To the facts of this case, the ratio in the said decision has absolutely no application. L....
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....that there is a boosting up in the business in the year itself. The link which was wanting in the reported decision of this court appears to have been found by the Appellate Tribunal as a fact. In these circumstances, there is no warrant for the contention of the learned standing counsel that the purchase of the Government Loan Bonds was in the nature of investment and, therefore, resulted in capital assets, loss wherein could not be admitted as revenue expenditure." We are in respectful agreement with the view indicated by the Division Bench in this case and would reiterate that the ratio in Patnaik & Co.'s case must be confined to its own facts. According to assessee's counsel on the findings recorded by the Tribunal which are based....