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Issues:
1. Interpretation of Section 10(2), para (xii) of the Indian Income-tax Act, 1922, as amended by the Indian Income-tax (Amendment) Act, 1939. 2. Allowability of certain expenditure claimed by the assessee for deductions in computing profits or gains of a business. 3. Application of the definition of capital expenditure in the context of acquiring raw materials for business. 4. Comparison of the present case with precedents involving the purchase or leasing of mines, quarries, standing timber, and material for manufacturing. Detailed Analysis: 1. The judgment addressed the interpretation of Section 10(2), para (xii) of the Indian Income-tax Act, 1922, as amended by the Indian Income-tax (Amendment) Act, 1939. The section allows for the deduction of expenditure laid out exclusively for the purpose of a business. The question arose regarding the applicability of this provision in the assessments of the appellants for the years 1940-41 and 1941-42. 2. The issue of whether certain expenditure claimed by the assessee was allowable for deductions in computing profits or gains of the business was central to the judgment. The Income-tax Officer disallowed the claimed expenditure, which was admitted to have been made wholly and exclusively for the business. The Appellate Assistant Commissioner and the Income-tax Appellate Tribunal upheld the disallowance, leading to an application for reference to the High Court. 3. The judgment delved into the application of the definition of capital expenditure concerning the acquisition of raw materials for the business. The contracts entered into by the appellants for obtaining tendu leaves, a raw material for manufacturing cigarettes, were analyzed. The court emphasized that the contracts granted no interest in land or trees, merely the right to pick and carry away leaves, which constituted the raw material. 4. A significant aspect of the judgment involved comparing the present case with precedents related to the purchase or leasing of mines, quarries, standing timber, and material for manufacturing. The court distinguished cases involving the acquisition of land or standing timber, highlighting that in the present scenario, the appellants acquired the leaves only upon picking them, akin to purchasing raw material from a merchant's godown. Overall, the judgment concluded that the expenditure on acquiring tendu leaves for manufacturing cigarettes was revenue expenditure and not capital expenditure. The court emphasized the business purpose of the expenditure and differentiated the case from precedents involving the acquisition of land or standing timber. The appeal was allowed, and the respondent was ordered to pay the costs of the appellants.
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