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TMI Blog1965 (7) TMI 57X X X X Extracts X X X X X X X X Extracts X X X X ..... the Indian Companies Act on June 29, 1945. The main object of the new company was to take over the spinning and weaving mills and the ginning and pressing factory as a going concern. By a sale deed dated September 14, 1945, the said Gopaldas Mohta sold the buildings valued at ₹ 13,70,000 and machinery and plant valued at ₹ 33,30,000 to the company. It was not a cash sale, but shares of the value of ₹ 47,00,000 were to be issued to Gopaldas Mohta as a consideration for the assets transferred. Relevant terms of the contract on which the argument for the learned counsel turns is in the following terms: ...for the price sum of ₹ 47,00,000 (Rupees forty-seven lakhs only), which shall be payable by the purchaser by allotment of 5,500 fully paid up preference shares of the value of ₹ 5,50,000 and 4,15,000 fully paid up ordinary shares of the value of ₹ 41,50,000 to be issued by the purchaser company after obtaining necessary consent from the Examiner of Capital Issues, Finance Department, Government of India, Delhi. Till such time of allotment of shares by the purchaser company to the vendors as hereinbefore mentioned, the said sum of ₹ 47,00 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or the delay in the issue of the shares, in our opinion, by no stretch of imagination, can be styled as a revenue item of expenditure which is incurred for the purpose of producing the profits. As a matter of fact, it has nothing to do with the carrying on of the business. Mohta would not have been in any better position if the shares were issued on the date the company received the commencement of business certificate. This item, in our opinion, has also not gone to increase the value of the asset and, therefore, is not an expenditure of a capital nature... In this view of the matter, the Tribunal dismissed the appeal. The application made by the assessee under section 66(1) of the Income-tax Act was dismissed by the Tribunal. The assessee then moved this court by an application under section 66(2) and on a requisition made by this court the aforesaid question of law is referred to us. Before dealing with the merits of the case, it will be necessary to deal with the preliminary objection raised by Mr. Joshi, learned counsel for revenue. The preliminary objections are two-fold. In the first instance, Mr. Joshi contends that the question framed postulates that the amount of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... shall state the case and refer it accordingly. It would be seen that the question which the assessee can ask the Tribunal to refer to the High Court must be one of law and it must arise out of the appellate order of the Appellate Tribunal. The power of the High Court under section 66(2) is exercisable on its coming to the conclusion that the refusal of the Tribunal to state the case was not correct. In other words, the power under section 66(2) is exercisable by a High Court if in the opinion of the High Court the question of law which the assessee or the Commissioner wants to raise is one arising out of the appellate order of the Tribunal and the Tribunal has erroneously refused to refer it to the High Court. It is not in dispute that the question whether the claim of the assessee that the said amount is a permissible allowance under section 10(2)(xv) is a question of law. The question, however, is, is it a question arising out of the order of the Tribunal? Now, it is an admitted position that the assessee had till the reference stage not argued or put forward a case that the said expenditure was a permissible allowance under section 10(2)(xv). In the statement of the case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s order notwithstanding that it may arise on the findings given by it. A question of law might be a simple one, having its impact at one point, or it may be a complex one, trenching over an area with approaches leading to different points therein. Such a question might involve more than one aspect, requiring to be tackled from different standpoints. All that section 66(1) requires is that the question of law which is referred to the court for decision and which the court is to decide must be the question which was in issue before the Tribunal. Where the question itself was under issue, there is no further limitation imposed by the section that the reference should be limited to those aspects of the question which had been argued before the Tribunal. It will be an over-refinement of the position to hold that each aspect of a question is itself a distinct question for the purpose of section 66(1) of the Act. It is the argument of Mr. Joshi that the present case falls under category(4) of the four categories laid down by their Lordships. The question as to whether the said amount is a permissible allowance under section 10(2)(xv) was neither raised before the Tribunal nor con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t. The following observations of their Lordships at pages 611 and 612 of the report lend support to the view taken by us: In this view, we have next to consider whether the question which was raised before the High Court was one which arose out of the order of the Tribunal, as interpreted above. Now the only question on which the parties were at issue before the income-tax authorities was whether the sum of ₹ 9,26,532 was assessable to tax as income received during the year of account, 1945-46. That having been decided against the respondents, the Tribunal referred in their application under section 66(1), the question, whether the sum of ₹ 9,26,532 was properly included in the assessee company's total income for the assessment year 1946-47, and that was the very question which was argued and decided by the High Court. Thus, it cannot be said that the respondents had raised any new question before the court. But the appellant contended that while before the income-tax authorities the respondents disputed their liability on the ground that the amount in question had been received in the year previous to the year of account, the contention urged by them before th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s that the said two decisions have no application at all. Interest paid in the instant case is neither interest paid on unpaid purchase price of assets nor interest paid on the amount borrowed for purchasing assets. The price for the purchase of assets is allotment of shares. On the terms of the contract the interest paid is referable only to the delay that was bound to be caused in the allotment of shares inasmuch as previous sanction of the Controller was required. The parties fully well knew the position and the interest so paid has no connection whatsoever with the running of the business. In our opinion, the contention raised on behalf of the revenue is well-founded. We have already referred to the relevant terms of the contract relating to the payment of interest. The agreement provides Till such time of allotment of shares by the purchaser company to the vendor as hereinbefore mentioned the said sum of ₹ 47,00,000 shall be a loan due to the vendor by the purchaser company. The loan amount shall carry interest at the rate of 3 per cent per. annum. The parties have chosen to call the value of the assets as a loan and the interest that is paid is interest on loan. It ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Coelho [1964] 53 I.T.R. 186, 192 (S.C.) thus: The aforesaid discussion leads to the following result: The expression 'for the purpose of the business' is wider in scope than the expression 'for the purpose of earning profits.' Its range is wide: it may take in not only the day-to-day running of a business but also the rationalization of its administration and modernization of its machinary; it may include measures for the preservation of the business and for the protection of its assets and property from expropriation, coercive process or assertion of hostile title; it may also comprehend payment of statutory dues and taxes imposed as a precondition to commence or for the carrying on of a business; it may comprehend many other acts incidental to the carrying on of a business. However wide the meaning of the expression may be, its limits are implicit in it. The purpose shall be for the purpose of the business, that is to say, the expenditure incurred shall be for the carrying on of the business and the assessee shall incur it in his capacity as a person carrying on the business. We fail to see how interest paid by the assessee-company to Gopaldas Mohta beca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he facts in Bombay Steam Navigation Co. v. Commissioner of Income tax [1965] 56 I.T.R. 52. (S.C.) were: Pursuant to a scheme of amalgamation between two shipping companies the assessee-company was incorporated to take over certain passenger and ferry services carried on by one of the former. Purchase price was agreed to be paid partly in the form of allotment of shares and partly in cash. Entire cash consideration agreed to be paid was not paid by the assessee and a part thereof remained unpaid. It was agreed between the parties to pay interest on the balance of unpaid price. The assessee- company claimed the expenditure incurred for payment of interest as an allowable expenditure under section 10(2)(iii) or section 10(2)(xv) or section 10(1). On behalf of the revenue, on the other hand, it was contended that the expenditure was capital in nature. The claim of the assessee under section 10(2)(xv) was upheld by their Lordships. In discussing the matter, their Lordships at page 59 of the report pointed out: Whether a particular expenditure is revenue expenditure incurred for the purpose of business must be determined on a consideration of all the facts and circumstances, and by ..... X X X X Extracts X X X X X X X X Extracts X X X X
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