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TMI Blog2015 (9) TMI 335X X X X Extracts X X X X X X X X Extracts X X X X ..... o carry on business in LPG. Therefore, the said deposit made should not be treated as revenue in nature and the loss thereof must not be treated as business loss. The loss thereof was a loss suffered on the capital account and could not be deducted on the basis that it was a business loss. See Hasimara Industries Ltd. v. Commissioner of Income Tax and another reported in [1997 (9) TMI 5 - SUPREME Court]. - Decided against the assessee - Tax Case (Appeal) No. 598 of 2006 - - - Dated:- 15-7-2015 - R. Sudhakar And K. B. K. Vasuki, JJ. For the Petitioner : Mr S Sridhar For the Respondent : Mr J Narayanasamy, Standing Counsel JUDGMENT (Judgment of the Court was delivered by R. Sudhakar,J.) This Tax Case (Appeal) filed by the assessee as against the order of the Income Tax Appellate Tribunal for the assessment year 1996-1997 was admitted by this Court on the following substantial questions of law: 1. Whether the Appellate Tribunal is correct in upholding the orders of the lower authorities in rejecting the claim of business loss comprised of deposit of ₹ 1,00,650/- relatable to dealership/distributorship and the balance of ₹ 8 lakhs referable to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as to be considered as a capital loss and not allowable as deduction. The Commissioner of Income Tax (Appeals) further held that the payment have not been made for the purpose of acquiring an enduring benefit of capital nature and the business have never been commenced, the loss could not be treated as business loss. Consequently, the Commissioner of Income Tax (Appeals) upheld the order of the Assessing Officer, thereby dismissed the appeal. For better clarity, the relevant portion of the order of the Commissioner of Income Tax (Appeals), reads as follows: 12.The next issue in the appeal relates to rejection of the appellant's claim of loss of ₹ 9,00,650/- as loss from Agency business. During the previous year, the appellant had made payment of ₹ 9,00,000/- to M/s.Jagmatha Enterprises (LPG) Pvt. Ltd., Madras for getting dealership/distributorship of LPG, manufactured by Birla Blue Flames Ltd. The A.O. has given the following reasons for making the disallowance of ₹ 9,00,650/-.: The distributorship business, however, never commenced and when the assessee wanted his money back from M/s.Jagmeetha Enterprises (LPG) Pvt. Ltd., Madras, he came to know th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat where the assessee has placed an order for purchasing a machinery along with security deposit and the assessee could not purchase the machinery resulting in forfeiture of security deposit, such loss was capital loss. In the case of Pragati Construction Co. -vs- DCIT 54 ITD 153 (Del.) where the amount deposited by the assessee firm with DDA, was forfeited in terms of the agreement, the claim of the assessee to allow the amount of advance as trading loss was rejected by the Tribunal. In the instant case, the appellant had paid ₹ 9 lacs., to M/s.Jagmeetha Enterprises which was for the purpose of acquiring a new business or a capital asset and, therefore, the loss of deposit has to be considered as a capital loss, not allowable as deduction. The payment having been made for the purpose of securing an enduring benefit of capital nature, the loss of ₹ 9 lacs, is clearly a capital loss as the business had never commenced. I, therefore, uphold the order of the A.O., disallowing the appellant's claim for deduction of ₹ 9,00,965/-. 4. As against the said order of the Commissioner of Income Tax (Appeals), the assessee once again pursued the matter before the Inc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at the case of Motiram Nandram [1940] 8 ITR 132 (PC) bears considerable similarity to the case that is before us. The assessee therein carried on business in cloth, yarn and money-lending. In 1930 it deposited with an oil company ₹ 50,000 in consideration of an agreement. Thereunder, the assessee was appointed the organising agents of the oil company for a period of five years for a stated area. It was to recommend selling agents. Sales were to be conducted entirely by the oil company and the selling agents, but the assessee was to receive a certain commission on all goods sold by the selling agents within the stated area and also on all sales of oil effected in the stated area by the oil company. The deposit was to remain at the disposal of the oil company for the purpose of the oil companys business and was to carry interest at the rate of 7 per cent. per annum until it was repaid out of the deposits made by the selling agents. After the assessee had recovered a part of its deposit, the oil company went into liquidation and, though the assessee obtained a decree for ₹ 39,500 against the oil company, it was unable to realise the decretal amount. The assessee claimed in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... We are in no doubt whatever that the High Court was right in concluding that the amount of ₹ 20 lakhs had been deposited by the assessee with the licensor company for the purpose of securing the licence under which the assessee had acquired the right to work the licensor's cotton mills. This is clear from the fact that the deposit was made pursuant to a clause in the leave and licence agreement. Had a deposit as required by that clause not been made, the assessee would not have secured the licence of the cotton mill. At that time the assessee was doing no business in cotton. The deposit was, clearly, made for the purpose of acquiring a profit-making asset to carry on business in cotton. It cannot, therefore, be held that the deposit was made on the revenue account or that the loss thereof must be treated as a business loss. The loss thereof was a loss suffered on the capital account and could not be deducted on the basis that it was a business loss. The High Court has answered the question correctly. The appeal is dismissed, with costs. 10. The LPG distributorship was for a profit making business which did not start. As in the above case, the deposit can ..... X X X X Extracts X X X X X X X X Extracts X X X X
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