Back
HIGH COURT OF CALCUTTA
A. N. Sen, S. K. Hazra
COMMISSIONER OF INCOME-TAX (CENTRAL) - Appellant
Versus
EMPIRE JUTE COMPANY LTD. - Respondent
Income-Tax Reference 109 Of 1968
Decided On : AUGUST 3, 1973
INCOME TAX - Whether the sum of Rs. 2,03,255 paid by the assessee for the purchase of loom hours was revenue expenditure and hence deductible under Section 10 (2) (xv) of the Indian Income-tax Act, 1922.
Fact of the Case:
The assessee, a jute manufacturing company, purchased loom hours from other mills and spent a sum of Rs. 2,03,255 in purchasing loom hours allotted to other mills. The assessee claimed the said sum as revenue expenditure. The Income-tax Officer disallowed the expenditure on three grounds: (1) that the payment could not be regarded as a normal incidence of trade; (2) that the payment was an application or appropriation of profit; and (3) that the purchase of loom hours constituted capital expenditure. The assessee preferred an appeal to the Appellate Assistant Commissioner, who held that the said sum of Rs. 2,03,255 was revenue expenditure and deductible as such. The department went up on appeal before the Appellate Tribunal. The Tribunal held that the sum of Rs. 2,03,255 is allowable as revenue expenditure deductible under Section 10 (2) (xv) of the Indian Income-tax Act, 1922, since it is not in dispute that the expenditure has been incurred wholly and exclusively for the purpose of the business.
Finding of the Court:
The Tribunal failed to appreciate properly the decision of the Supreme Court in the case of Maheshwari Devi Jute Mills Ltd. and was in error in holding the expenditure in question to be revenue in character.
Issues: None
Ratio Decidendi: The nature and character of loom hours has mainly to be considered and ascertained on a trade construction of the agreement against the general commercial background of the assessee's trading business. The nature and character of loom hours on the basis of an identical agreement came up for consideration before the Allahabad High Court in the case of Maheshwari Devi Jute Mills Ltd. v. Commissioner of Income-tax. The decision of the Allahabad High Court was affirmed on appeal by the Supreme Court and the decision of the Supreme Court is Commissioner of Income-tax v. Maheshwari Devi Jute Mills Ltd. The Allahabad High Court was, of course, concerned with the question of receipt of money by sale of loom hours by a mill to another mill in terms of and on the basis of the identical agreement. While deciding the question of the nature of the sum received by the selling mill from the buying mill in the hands of the selling mill, the Allahabad High Court considered the nature and character of loom hours and the transaction of sale in relation thereto. On a construction of the agreement and on a consideration of the relevant materials the Allahabad High Court held that loom hours were assets of a capital nature and formed part of the profit-making apparatus of the assessee and the sum received by sale thereof was, therefore, capital receipt and was not revenue in character.
Final Decision: The question is answered in the negative, in favour of the revenue and against the assessee.
( 1 ) IN this reference under Section 66 (1) of the Indian Income-tax Act, 1922, the following question of law has been referred to this court:"whether, on the facts and in the circumstances of case, the Tribunal was right in holding that the sum of Rs. 2,03,255 paid by the assessee for the purchase of loom hours was revenue expenditure and hence deductible under Section 10 (2) (xv) of the Indian Income-tax Act, 1922 ?"
( 2 ) THE facts of the case have been full)'' set out in the statement of the case and they may be briefly indicated.
( 3 ) THE respondent, assessee-company, carries on business of jute manufacture and is a member of the Indian Jute Mills Association, The Indian Jute Mills Association is registered under the Indian Trade Unions Act (Act XVI of 1926) with its registered office at Calcutta. The objects of the association, inter alia, are :1. (a) to protect, forward and defend the trade of members of the association; (b) to impose restrictive conditions on the conduct of the trade ; (c) to adjust the production of the mills in the membership of the association to the demand in world market; (d) to arbitrate on matters in dispute. 2. (a) to protect the members of the association against competition ; (b) to secure the enactment of legislation beneficial to the trade; (c) to secure the repeal of any legislation or prevent the passing of legislation which is damaging or may in any way damage the trade.
( 4 ) IT will, therefore, appear that the Indian Jute Mills Association (hereinafter referred to as "the association") was formed in the interest of the various companies who carried on the trade of manufacturing jute and who become the members of the association and one of the main objects of the association was to adjust the production of the mills to the demand of jute and other products in the world market and to impose restrictive conditions on the conduct of the trade for this purpose. In common interest of the members of the association and in furtherance of the main objects of the association the members of the association entered into agreements, amongst themselves, known as "working time agreements" from time to time. The first "working time agreement" was executed in 1939. The said agreement was replaced by fresh agreements in 1944, 1949, 1954 and 1959. These agreements are more or less in similar terms and they appear to have been in operation for periods of 5 years each. The agreement with which the present case is concerned is the agreement of 1954 which was executed on December 9, 1954. It is necessary to consider the slid agreement of December 9, 1954, in some detail, as the question involved in the present case has some bearing on the said agreement and its interpretation. The recitals contained in the said agreement, inter alia, run as follows:"whereas the signatories are members of the Indian Jute Mills' Association (hereinafter called 'the association') and whereas the objects of the association are, inter alia, to protect and defend the trade of the members and in that behalf to impose restrictive conditions and to adjust the production of the signatories and whereas the signatories in the general interest of the members and their employees and of the association and the jute industry and trade in general have entered into an agreement dated the 9th January, 1939 (hereinafter called the first 'working time agreement' ). . . . . . And whereas the signatories have for reasons aforesaid determined that provisions similar to those contained in the first and second and third and fourth working time agreements should be entered into and continued in the manner hereinafter appearing. Now this agreement witnesseth and the signatories hereto hereby jointly and severally agree each with the other both as signatories to the agreement and as members of the association. "
( 5 ) UNDER Clause (1) of the agreement it is to continue for a period of 5 years from December 12, 1959. Clause (4), which
AI
An indispensable Tool for Legal Professionals, Endorsed by Various High Court and Judicial Officers
Please visit our Training & Support
Center or Contact Us for assistance
Scan Me!
India’s Legal research and Law Firm App, Download now!
For Daily Legal Updates, Join us on :
Back to top
