1968 (4) TMI 7 - HC - Income Tax

Computation of the assessee s business income u/s 10(2)(xv) - expenditure in obtaining a new permit can not be regarded as expenditure laid out for the purpose of the business of running buses covered by other permits - not an admissible deduction

Summary

Issues:
- Deduction of legal expenses in the computation of business income for the assessment year 1959-60.

Analysis:
The judgment pertains to the deduction claimed by the assessee for legal expenses incurred, specifically a sum of Rs. 1,250 paid to an advocate in connection with obtaining three new bus route permits. The Income-tax Officer disallowed the claim entirely, while the appellate authority and the Tribunal found that the correct deductible figure was Rs. 1,250. The central question before the court was whether this sum was an admissible deduction under section 10(2)(xv) of the Indian Income-tax Act for the assessment year 1959-60. The court examined the nature of the expenses incurred in obtaining the route permits and their impact on the business income of the assessee.

The court observed that the expenses related to obtaining route permits under the Motor Vehicles Act were of a capital nature rather than revenue character. It highlighted that each route permit is a separate entity granted after elaborate proceedings, essential for running buses in the transport business. The court emphasized that the business of the assessee, a fleet owner engaged in transport business, primarily involved running buses with existing permits. Acquiring new permits did not constitute an ongoing business activity but rather laid the foundation for a new business endeavor, making the expenses capital in nature.

Furthermore, the court distinguished expenses incurred in registering a trademark from those related to obtaining route permits. It noted that registering a trademark typically occurs after a business has been established and holds a reputation, aligning with ongoing business operations. In contrast, obtaining route permits precedes the commencement of a new business activity and is essential for initiating operations, indicating a capital expenditure. The court referenced precedents and statutory provisions to support its interpretation of the nature of expenses in question.

In conclusion, the court rejected the contention that the expenses incurred in obtaining new route permits were revenue expenditures eligible for deduction under section 10(2)(xv) of the Income-tax Act. It held that such expenses were capital in character, associated with acquiring property (permits) to initiate a new business activity rather than supporting the existing business operations. The judgment emphasized the distinction between revenue and capital expenditures in the context of business activities, ultimately ruling against the assessee and awarding costs to the counsel.