1987 (10) TMI 4 - HC - Income Tax

Summary

Issues:
1. Claim of brokerage paid on the sale of shares as revenue expenditure.
2. Claim of expenses incurred on foreign tour as revenue expenditure.
3. Deduction of fees paid for business diversification report as revenue expenditure.
4. Deduction of surtax payable as business expenditure.

Analysis:

1. The first issue involved whether the brokerage paid on the sale of shares could be claimed as revenue expenditure. The court found that the shares were held as an investment, not as stock-in-trade, and thus the expenditure on brokerage was considered capital in nature. As a result, the court answered this question in the negative, favoring the Revenue.

2. The second issue pertained to the expenses incurred on a foreign tour by the chairman and managing director. The court noted that the expenses related to a proposed new business venture in leather goods manufacture, which was deemed unrelated to the current business activities. As per section 37, only expenses wholly and exclusively for the business purpose are allowed as deductions. The court found no grounds to consider the expenditure as laid out exclusively for the current business, leading to a negative answer in favor of the Revenue.

3. The third issue was regarding the deduction of fees paid for a report on diversification of business activity. Since the report was related to a proposed new business venture, similar to the second issue, the court concluded that the expenditure did not qualify as revenue expenditure for the existing business. Therefore, the court answered this question in the negative, favoring the Revenue.

4. The final issue involved the deduction of surtax payable under the Companies (Profits) Surtax Act as business expenditure. The court referred to a previous judgment against the assessee on a similar matter and concluded that this deduction was not permissible as business expenditure. Consequently, the court answered this question in the negative, in favor of the Revenue.

In summary, the court ruled in favor of the Revenue on all four issues, denying the claims for various expenditures as revenue deductions. The judgment highlighted the distinction between capital and revenue expenditure, emphasizing the necessity for expenses to be wholly and exclusively for the current business to qualify for deductions under section 37 of the Income-tax Act, 1961.