Case: M/S Hasimara Industries Ltd Vs. Commissioner Of Income Tax West Bengal-Ix And Another

the period of the agreement . Thus, the assessee had the advantage of using a new and more modern profit-making apparatus. When the Company itself had not treated the advance of Rupees twenty lakhs to M/s Saksaria Cotton Mills Limited as by way of a loan transaction and the amount had been treated by the assessee as the capital advance as evidenced by the resolutions based by the Board of Directors at the time of granting of loan, the High Court held that the findings of the Tribunal should be affirmed and answered the question referred for its opinion against the assessee. It is against this order the present appeal is filed by special leave. Ms. Radha Rangaswami, learned counsel for the appellant submitted that though the assessee had mad e a lumpsum payment not in order to gain an anduring benefit, out only to augment income in the course of its ordinary business and sought exemption was not capital in nature being allowable as revenue expenditure and in terms of Section 37 of the Income Tax Act.The learned counsel for the Department contended that the view of the decision of this Court in Hasimara Industries Limited vs. Commissioner of west Bengal and Another in the very case of the assessee there was hardly any thing left for decision by us. He submitted that the agreement which is subject matter of consideration in these proceedings was also considered in that decision and in the context of another transaction had been interpreted. Undaunted by the submission of the learned counsel for the Department, Ms. Radha Rangaswami persisted in her argument. She relied on Alembic Chemical Works Co. Ltd. Vs. Commissioner of Income Tax, Gujarat. That was the case where the assessee who was engaged in manufacture of antibiotics including penicillin acquired knowhow to produce higher yield and sub-culture of strains of penicillin and there was no evidence to indicate that this was not in the line of existing manufacturing operations and, therefore this Court took the view that the payment was made in the course of carrying on an existing business and the butlay was incurred for the purpose of acquiring the technical knownow in relation to its business and considering the rapid strides in science and technology is to pigeonholing an outlay, such as in this case as capital. It was on that basis the Court held that though lumpsum payment had been made once for al l it was not capital in nature and attracted the deduction under Section 37 of the Income Tax Act. Again, the learned counsel for the assessee relied upon the decision in Commissioner of Income Tax, Kerala vs. Malayalam plantations Ltd. wherein estate duty was paid on the death of non-domiciled shareholders and was "for the purpose of the business" and "for the purpose of earning profits" and therefore, allowable as business expenditure. However that is not the position in the present case wherein the assessee has given an advance in a sum of Rupees twenty lakhs for a purpose not in the line of its business as found by the Tribunal which is the last fact finding authority. In Empire Jute Co. Ltd. Vs. Commissioner of Income Tax certain loom hours were purchased by one member of an assessee from another member and the members in the Association had bound themselves to work their mills for limited hours per week and in those circumstances the price paid was held to be in the nature of revenue expenditure in terms of Section 10(2) (xv) of the Indian Income Tax Act, 1952 and not deductible. The test adopted in that case is the nature of the advantage in a commercial sense and where it is only the advantage in the capital field, the expenditure cannot be allowed, but if the advantage consists merely in facilitating the assessees trading operations or enabling the management and conduct of the assessees business to be carried or more efficiently or more profitable while leaving the fixed capital untouched, the expenditure would be on revenue account, even though the advantage may endure for an indefinite future. The purchase of loom hours did not create any new asset and there was no addition to or expansion of the profit-making apparatus of the assessee nor the permanent structure of which the Income was the product remained the same. It was not enlarged nor did the assessee acquire a source of profit of income when it purchased the looms in question. The expenditure incurred was primary and essentially related to the operation or working of the looms which constituted the profit making apparatus of the assessee and was expenditure laid out as part o f the process of profit earning. It was on that basis the claim was allowed. Therefore that decision will not help the assessee in the present case.In Commissioner of Income Tax vs. Hashimara Industries Limited. the very agreement with which we are concerned itself was subject matter of consideration by the High Court. Pursuant to the agreement amount was deposited with the cotton mills for acquiring profit making apparatus. Then there was closing down of the cotton mill and loss of deposit constituted capital loss. It was held in that case that the assessees ordinary business was manufacture and sale or the tea and it started cotton manufacturing business acquiring the right to operate the mill belonging to another company for a specified period under a leave and licence agreement after depositing certain sum in terms of the agreements. After the expiry of the agreements M/s Saksaria Cotton Mills Limited itself managed the cotton mills out suffered loss and went into liquidation. consequently, the sum deposited by the assessee remained unpaid. In those circumstances, it was held that the loss of the deposit was in the capital account and not business expenditure of assessee. That matter was carried in appeal to this Court in Hasimara Industries Limited. vs. Commissioner this Court upheld the view taken by the High Court.

Decision (1 = appeal accepted, 0 = rejected): 1

Explanation:
1[ds]The expenditure incurred was primary and essentially related to the operation or working of the looms which constituted the profit making apparatus of the assessee and was expenditure laid out as part o f the process of profit earning. It was on that basis the claim was allowed. Therefore that decision will not help the assessee in the present case.In Commissioner of Income Tax vs. Hashimara Industries Limited. the very agreement with which we are concerned itself was subject matter of consideration by the High Court. Pursuant to the agreement amount was deposited with the cotton mills for acquiring profit making apparatus. Then there was closing down of the cotton mill and loss of deposit constituted capital loss. It was held in that case that the assessees ordinary business was manufacture and sale or the tea and it started cotton manufacturing business acquiring the right to operate the mill belonging to another company for a specified period under a leave and licence agreement after depositing certain sum in terms of the agreements. After the expiry of the agreements M/s Saksaria Cotton Mills Limited itself managed the cotton mills out suffered loss and went into liquidation. consequently, the sum deposited by the assessee remained unpaid. In those circumstances, it was held that the loss of the deposit was in the capital account and not business expenditure of assessee. That matter was carried in appeal to this Court in Hasimara Industries Limited. vs. Commissioner this Court upheld the view taken by the High Court.