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TMI Blog1958 (9) TMI 88X X X X Extracts X X X X X X X X Extracts X X X X ..... rtook to supply certain commodities. In accordance with the term of the tender it had to deposit a certain amount as security for properly carrying out the contract. In the particular case with which we are concerned, the assessee could not carry out the contract, with the result that the amount of ₹ 4,419 deposited in respect of that particular tender was forfeited, and the assessee claimed this as a trading loss. The Tribunal has taken the view that this was a capital loss and therefore no deduction was permissible. We have not the advantage of any reason given by the Tribunal as to why it has come to this conclusion. Now, it has often been said that the line to be drawn between a revenue and a capital expenditure is a very thin li ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ermitted to him. The argument of Mr. Joshi is that this deposit was made by the assessee not for the purpose of earning profits but for the purpose of obtaining a business which would make it possible to earn profits. In other words, his contention is that the payment of his deposit is antecedent to and de hors the business which the assessee carried on and which yielded profits to him. Apart from authorities to which we shall presently turn, the contention does not seem to be tenable. This is not a case where the assessee makes this deposit in order to acquire a business, nor is this a case where an amount is deposited as a sort of a temporary investment yielding interest, the deposit being necessary in order that the assessee should be p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ure which is and expenditure which is not, incurred solely for the purpose of earning profits or gains." Now, in the first place, the Privy Council was not considering the case of a trading loss. The Privy Council was considering a specific allowance claimed under the provisions of section 10(2) of the Income- tax Act, and even in deciding that the Privy Council felt difficulty, and the Privy Council points out that the payments they were considering were not made in the process of earning profits. They did not arise out of any transactions in the conduct of their business. That the assessees had to make those payments no doubt affected the ultimate yield in money to them for their business but that is not the statutory criterion. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l sales effected in the area by the company. The deposit was to yield interest at 7 per cent. Part of the deposit was repaid and then the company went into liquidation, and the assessees claimed the part of the deposit which was lost to them and that claim was rejected by the Privy Council. Now, in the first place, the Privy Council took the view that the deposit was made by the assessees for the purpose of being permitted to engage in a business and that must be considered to be a purpose of securing an enduring benefit of a capital nature. Therefore, on the facts of that case where the assessees were launching upon a new business and they could only start this business by making this deposit, the Privy Council observed that by making the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e solely for the purpose of earning profits in the course of the business. The Privy Council also points out that the question that should be posed is--" what is the object of the expenditure?"--and they proceed to answer that question by saying--" it must be answered from the standpoint of the assessee at the time the deposit was made." From the point of view of the assessee in this. case there cannot be the slightest doubt that the deposit was looked upon as a business expenditure and if the deposit was forfeited it was a business loss.
The result is that we must answer the question submitted to us in the affirmative. The Commissioner to pay the costs.
Question answered in the affirmative. X X X X Extracts X X X X X X X X Extracts X X X X
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