1983 (12) TMI 57 - HC - Income Tax

Summary

Issues:
1. Disallowance of expenditure as capital expenditure.
2. Allowance of payment made to the State of Rajasthan under section 10(2)(xv) of the Indian Income-tax Act 1922.

Analysis:
1. The judgment addresses three cases with identical questions referred by the Income-tax Appellate Tribunal regarding the disallowance of expenditure as capital expenditure. The expenditure in question pertains to royalty payments made by the assessee-company to the State of Rajasthan. The Tribunal disallowed the expenditure, considering it as capital expenditure for acquiring an enduring advantage for the business. The court delves into the history of the agreement between the company and the former ruler of Jodhpur State, leading to the royalty payments. However, subsequent events, including a civil suit and a decree for refund of royalty payments, rendered the questions academic as no expenditure was actually incurred by the company.

2. The second issue involves the allowance of payments made to the State of Rajasthan under section 10(2)(xv) of the Indian Income-tax Act 1922. The court examines the nature of the expenditure incurred by the assessee-company in making royalty payments. Citing the Indian Molasses Co. case, the court emphasizes that for an expense to be considered expenditure, it must be paid irrevocably, which was not the case here due to subsequent events leading to refunds. The court relies on precedents to assert that answering academic questions is unnecessary, as in the CIT v. Smt. Anusuya Devi case, where the High Court declined to answer questions of purely academic nature. The court accepts the assessee's request to withdraw the references, considering the changed circumstances and the academic nature of the questions, and returns all three references unanswered.

In conclusion, the judgment highlights the impact of subsequent events on the relevance of the issues raised, leading to the decision to return the references without answering the questions due to their academic nature in light of the changed circumstances and the absence of actual expenditure incurred by the assessee-company.