TaxTMI 
TaxTMI 
1962 (5) TMI 3
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....of the respondent : " Whether there are materials for the Tribunal to hold that the sum of Rs. 2,87,422 aforesaid represents a loss of capital ? " Originally, two questions were referred, but with the second question we are not now concerned. The respondent is a limited liability company called the Mysore Sugar Co. Ltd., in which a very large percentage of shares is owned by the Government of Mysore. We shall refer to the respondent as the assessee company. The assessee company purchases sugarcane from the sugarcane growers and crushes them in its factory to prepare sugar. As a part of its business operations, it enters into agreements with the sugarcane growers, who are known locally as Oppigedars, and advances them sugarcane seedlin....
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....s as a deduction under sections 10(2)(xi) and 10(2)(xv) of the Indian Income-tax Act. The Income-tax Officer declined to make the deduction, because, in his opinion, this was neither a trade debt nor even a bad debt but an ex gratia payment almost like a gift. An appeal to the Appellate Assistant Commissioner also failed. Before the Income-tax Appellate Tribunal, Madras Bench, these two arguments were again raised, but were rejected, the Tribunal holding that the payments were not with an eye to any commercial profit and could not thus be said to have been made out of commercial expediency, so as to attract section 10(2)(xv) of the Act. The Tribunal also held that these were not bad debts, because they were " advances, pure and simple, not ....
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.... " is payable under section 10 of the Income-tax Act. That section provides by sub-section (1) that the tax shall be payable by an assessee under the head " Profits and gains of business, etc." in respect of the profits or gains of any business, etc., carried on by him. Under sub-section (2), these profits or gains are computed after making certain allowances. Clause (xi) allows deduction of bad and doubtful business debts. It provides that when the assessee's accounts in respect of any part of his business are not kept on the cash basis, such sum, in respect of bad and doubtful debts, due to the assessee in respect of that part of his business is deductible but not exceeding the amount actually written off as irrecoverable in the books of ....
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....e of capital. The questions to consider in this connection are : for what was the money laid out? was it to acquire an asset of an enduring nature for the benefit of the business, or was it an outgoing in the doing of the business ? If money be lost in the first circumstance, it is a loss of capital, but if lost in the second circumstance, it is a revenue loss. In the first, it bears the character of an investment, but in the second, to use a commonly understood phrase, it bears the character of current expenses. This distinction is admirably brought out in some English cases, which were cited at the bar. We shall refer only to three of them. In English Crown Spelter Co. Ltd. v. Baker, the English Crown Spelter Co. carried on the business....
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....To arrange for supplies of wood pulp, it entered into an agreement with a Canadian company for Supply of 3,000 tons per year between 1917-1927. The English company made an advance of pound 30,000 against future deliveries to be recouped at the rate of pound 1 per ton delivered. The Canadian company was to pay interest in the meantime. Later, the importation of wood pulp was stopped, and the Canadian company (appropriately called the Ha! Ha! Company) neither delivered the pulp nor returned the money. Rowlatt J. held this to be a capital expenditure not admissible as a deduction. He was of opinion that the payment was not an advance payment for goods, observing that no one pays for goods ten years in advance, and that it was a venture to esta....