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TMI Blog1997 (9) TMI 5X X X X Extracts X X X X X X X X Extracts X X X X ..... 19, 1963, the Tribunal was right in holding that the loss of Rs. 20 lakhs which had been deposited by the assessee with Saksaria Cotton Mills Ltd., pursuant to clause 17 of the said agreement, arose in the carrying on of the assessee's business and was incidental to it and was accordingly allowable as a business loss? The High Court noted the facts found by the Tribunal, as under : "The assessee is a public limited company. It owned several tea estates and its main income was from sale of tea. Devenport and Co. (P) Ltd., are the managing agents of the assessee. In 1960, the assessee altered its memorandum of association with the approval of the Calcutta High Court for the purpose of diversifying its activities and it took cotton busi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... informed by counsel for the assessee that the extension was on the same terms and conditions on which the leave and licence agreement had been made. The assessee made a credit entry of Rs. 1,40,000 being the interest receivable by it from Saksaria Cotton Mills Ltd., on the deposit of Rs. 20 lakhs at the rate of 7 per cent. per annum. This entry was reversed in the year under consideration. During the extended period of three months, the assessee paid insurance premium, rates and taxes and other expenses for the whole of the year though the extended period was only for three months. The assessee debited these expenses for the remaining nine months to the account of Saksaria Cotton Mills Ltd. The amounts debited were Rs. 1,48,470 for insuran ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on of a profit-making apparatus. It did not make the assessee a trade creditor of the cotton mills company;" also, that it found it "difficult to accept the contention that the deposit was made in the course of the day-to-day business of the assessee. The assessee was not engaged in the business of reviving sick cotton mills. The assessee's day-to-day business did not include taking lease of cotton mills or entering into licensing agreements with other cotton mill companies. The assessee's usual business was manufacture and sale of tea. It wanted to enter into cotton manufacturing business. To effectuate this purpose, it did not set up a cotton mill of its own but merely acquired the right to operate the mills belonging to another c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... purposes of carrying on the cotton business. It had entered into a partnership with one Bajoria and that partnership had run the said cotton mills on lease for a period of nine months. The High Court was, therefore, in error in taking the view that the cotton business had commenced with the taking on leave and licence of the said cotton mills. In counsel's submission, the deposit of Rs. 20 lakhs made as aforestated had been lost to the assessee by reason of the winding up of the licensor company and it had rightly claimed that loss as a business loss, for its business in cotton had suffered that loss. Learned counsel referred to the judgment of this court in Empire Jute Co. Ltd. v. CIT [1980] 124 ITR 1. This court drew attention to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ue drew our attention to the judgment of the Privy Council in CIT v. Motiram Nandram [1940] 8 ITR 132, upon which the High Court had relied. It must be said at once that 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 Rs. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the course of such business. It was in one aspect a loan made to the company but it was not a loan made in the course of carrying on the business of organising agents or in the course of the business of a money-lender. It was not a recurring expenditure. On the other hand, it was contemplated that in whole or in part the deposit should be returned to the assessees by the receipt of deposit from selling agents; so that if the Rs. 50,000 does fall to be regarded as invested in a business of organising agents, it was invested with a prospect that it might be a temporary investment and not a permanent one---in other words that the capital might later be withdrawn from the business. The question in such a case as the present must be 'wha ..... X X X X Extracts X X X X X X X X Extracts X X X X
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