1984 (4) TMI 26 - HC - Income Tax

Summary

Issues:
1. Whether the Tribunal was correct in disallowing the write-off of Rs. 6,50,922 as a business loss?
2. Whether there was commercial expediency involved in the write-off of Rs. 6,50,922?
3. Whether the write-off of Rs. 6,50,922 amounted to an expenditure incurred by the assessee-company?

Analysis:

Issue 1:
The assessee, M/s. B. M. S. (P.) Ltd., Tirupur, claimed a deduction of Rs. 6,50,922 as a business loss for the assessment year 1977-78. The Commissioner of Income-tax (Appeals) allowed the deduction, but the Tribunal held that the amount was not a business loss. The Tribunal concluded that the sum was incurred by the management for acquiring exclusive rights over the company, not for business purposes. The High Court agreed with the Tribunal's decision, stating that the write-off was personal expenses of a group and not expenses incurred by the company for its business purposes.

Issue 2:
Regarding the commercial expediency of the write-off, the Tribunal found no indication of any commercial expediency involved in the write-off of Rs. 6,50,922. The Tribunal's decision was based on the fact that the amount written off was part of an arrangement where one group acquired exclusive ownership of the company by forgoing the sum due from the other group. The High Court concurred with the Tribunal's finding, emphasizing that the write-off was part of a personal arrangement between the groups, not a business decision made for commercial expediency.

Issue 3:
The Tribunal also considered whether the write-off of Rs. 6,50,922 amounted to an expenditure incurred by the assessee-company. The Tribunal determined that the amount written off was a personal expense of the group acquiring exclusive ownership of the company, not an expense incurred by the company for its business purposes. The High Court upheld the Tribunal's decision, stating that the amount forgone by one group to acquire exclusive ownership should be considered personal expenses, not expenses incurred by the company for business purposes.

In conclusion, the High Court dismissed the reference petition, stating that no question of law arose from the Tribunal's order. The Court affirmed the Tribunal's decision that the write-off of Rs. 6,50,922 was not a business loss, lacked commercial expediency, and did not constitute an expenditure incurred by the assessee-company for its business purposes.