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Issues Involved:
1. Nature of expenditure (capital vs. revenue) of Rs. 3 lakhs paid to M/s. Mineral Mining Co. Ltd. 2. Deductibility of expenditure of Rs. 64,503 and Rs. 2,26,496 due to the washing away of the approach bridge. 3. Deductibility of expenditure of Rs. 20,40,000 and Rs. 2,92,285 spent for getting the use of electrical power from Gujarat Electricity Board. Issue-Wise Detailed Analysis: 1. Nature of Expenditure of Rs. 3 Lakhs: The primary issue was whether the payment of Rs. 3 lakhs to M/s. Mineral Mining Co. Ltd. was revenue or capital expenditure. The assessee, Gujarat Mineral Development Corporation Ltd., paid this amount to avoid competition and to facilitate the acquisition of a mining lease for Survey No. 30. The authorities, including the Income Tax Officer (ITO), Appellate Assistant Commissioner (AAC), and the Income-tax Appellate Tribunal, all held that the expenditure was capital in nature. The Tribunal relied on Supreme Court decisions in R. B. Seth Moolchand v. CIT and Mewar Sugar Mills Ltd. v. CIT, concluding that the expenditure was for an enduring benefit, thus capital in nature. The High Court upheld this view, stating that the expenditure was made with the twin objectives of driving out a competitor and clearing the way for acquiring a mining lease, which is a capital asset. The court emphasized that the expenditure was not for securing stock-in-trade but for acquiring a capital asset, thus confirming it as capital expenditure. 2. Deductibility of Expenditure Due to Washing Away of Approach Bridge: The assessee incurred Rs. 64,503 in the assessment year 1970-71 and Rs. 2,26,496 in the assessment year 1971-72 for constructing an approach bridge, which was washed away by floods. The ITO and AAC disallowed the deduction, treating it as a capital loss. The Tribunal also rejected the claim under Sections 28(1), 37, and 32(1) of the Income Tax Act, 1961, and as a short-term capital loss. The High Court agreed with the Tribunal, stating that the expenditure was on capital account and could not be treated as a business or revenue loss. The court cited the decision in Dalmia Dadri Cement Ltd. v. CIT, which held that expenditure for acquiring a plant is capital in nature, and any loss in that transaction is also capital in nature. The court also referred to CIT v. R. M. Amin and CIT v. Vania Silk Mills (P.) Ltd., emphasizing that in the absence of consideration, Section 45 would not be attracted, and hence, the loss could not be treated as a short-term capital loss. 3. Deductibility of Expenditure for Electrical Power from Gujarat Electricity Board: The assessee claimed Rs. 20,40,000 for the assessment year 1970-71 and Rs. 2,92,285 for the assessment year 1971-72, spent for getting electrical power from Gujarat Electricity Board. The Tribunal disallowed the claim, stating that the expenditure was capital in nature. The High Court referred to its earlier decision in CIT v. Gujarat Mineral Development Corporation, where it was held that the expenditure was on revenue account as it facilitated the assessee's trading operations without augmenting its fixed capital. The court concluded that the expenditure was for running the business more efficiently and profitably, thus confirming it as revenue expenditure. Conclusion: The High Court affirmed the Tribunal's decisions on all issues: 1. The expenditure of Rs. 3 lakhs was capital in nature. 2. The losses due to the washing away of the approach bridge were capital losses and not deductible under revenue expenditure. 3. The expenditure for electrical power was revenue in nature, as previously decided by the court.
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