1966 (8) TMI 2 - HC - Income Tax

Expenditure made by assessee to procure the use of money from the bank in the shape of an overdraft for the purpose of its business - expenditure wholly laid out for the purpose of its business - expenditure incurred by the assessee is an allowable item of deduction under s. 10(2)(xv)

Summary

Issues:
Whether the expenditure incurred by the assessee is an allowable deduction under section 10(2)(xv) of the Income-tax Act.

Analysis:
The case involved a company manufacturing sugar that deducted an expenditure for stamps and registration charges for entering into an agreement with a bank to obtain an overdraft. The Income-tax Officer disallowed the deduction, considering it as capital expenditure for a new agreement rather than a renewal. The Appellate Assistant Commissioner and the Tribunal upheld this view, leading to the reference by the assessee to the High Court.

The High Court analyzed whether the expenditure brought into existence an asset of an enduring nature, following the test laid down by Viscount Cave L. C. in Atherton v. British Insulated and Helsby Cables Ltd. The court emphasized that a loan, like an overdraft, is not an asset of enduring nature but a liability for meeting contingencies in business operations. The court rejected the distinction made by the departmental authorities between initial expenditure for a new agreement and expenditure for renewal, citing the Supreme Court's decision in India Cements Ltd. v. Commissioner of Income-tax.

Based on the principles established in previous cases and the facts of the present case, the High Court held that the expenditure enabled the assessee to procure the use of money from the bank through an overdraft for business purposes. Therefore, the expenditure was deemed wholly laid out for the purpose of the business, making it an allowable deduction under section 10(2)(xv) of the Income-tax Act.

In conclusion, the High Court answered the question in the affirmative, in favor of the assessee. The Commissioner of Income-tax was directed to pay the costs of the reference, assessed at Rs. 200, along with counsel's fee also assessed at Rs. 200.