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TMI Blog1998 (5) TMI 7X X X X Extracts X X X X X X X X Extracts X X X X ..... Business Loss, Capital Or Revenue Loss Referred Case(s) : 177 ITR 377, 53 ITR 140, 175 ITR 477, 124 ITR 1, 230 ITR 927 S. RAJENDRA BABU, J. : This appeal by special leave under Art. 136 of the Constitution of India is preferred by an assessee under the IT Act against an order made on 29th Aug., 1986 by the High Court of Calcutta in IT Ref. No. 683 of 1979. The question that fell for consideration of the High Court is as to deductibility of a sum of Rs. twenty lakhs out of the assessee's profits as sum was given by way of advance to M/s Saksaria Cotton Mills Ltd. for modernisation of its plants. 2. When M/s Saksaria Cotton Mills Ltd. was in the process of liquidation the assessee-company, which owned tea estates filed a scheme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... shall bring any new plant, machinery or equipment or unit it will be in the absolute and uncontrolled discretion of the licensor whether to do so or not and on such terms as may be agreed to at that time." The amount of Rs. twenty lakhs is said to have been given by way of advance in terms of the said clause. Before the AO, the assessee claimed the advance of Rs. twenty lakhs as deductible on the ground that it became irrecoverable on account of the incapacity of M/s. Saksaria Cotton Mills Ltd. to repay the same. The AO disallowed the claim stating that the amount represented as advance to M/s Saksaria Cotton Mills Ltd. for modernisation of its factory and the said amount was not taken into consideration in computing the income of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3. Aggrieved by the order of the Tribunal on a reference made to the High Court at the instance of the assessee, the High Court held that it is a settled principle that loss of money lent or advanced would be a capital loss unless the loan was made by a moneylender for whom money was his stock-in-trade and such a situation would arise in case of a banking or moneylending business where money is treated as stock-in-trade. It was also noticed by the High Court that although assessee had some moneylending business, the amount of Rs. twenty lakhs was not lent to M/s Saksaria Cotton Mills Ltd. as a loan transaction, but pursuant to cl. 13 of the agreement. It was also noticed by the High Court that it was not a trade debt and the assessee advanc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ese proceedings was also considered in that decision and in the context of another transaction had been interpreted. 6. Undaunted by the submission of the learned counsel for the Department, Ms. Radha Rangaswami persisted in her argument. She relied on Alembic Chemical Works Co. Ltd. vs. CIT (1989) 77 CTR (SC) 1 : (1980) 177 ITR 377 (SC) : TC 16R.1277. That was the case where the assessee who was engaged in manufacture of antibiotics including penicillin acquired know-how to produce higher yield and sub-culture of strains of penicillin and there was no evidence to indicate that this was not in the line of existing manufacturing operations and, therefore, this Court took view that the payment was made in the course of carrying on an exist ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the advantage in a commercial sense and where it is only the advantage in the capital field, the expenditure cannot be allowed, but if the advantage consists merely in facilitating the assessee's trading operations or enabling the management and conduct of the assessee's business to be carried on more efficiently or more profitably while leaving the fixed capital untouched, the expenditure would be on revenue account, even though the advantage may endure for an indefinite future. The purchase of loom hours did not create any new asset and there was no addition to or expansion of the profit-making apparatus of the assessee nor the permanent structure of which the income was the product remained the same. It was not enlarged nor did the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t matter was carried in appeal to this Court in Hasimara Industries Ltd. vs. CIT Anr. (supra) and this Court upheld the view taken by the High Court. 8. It is clear from the findings recorded by the Tribunal and the High Court that the assessee's business is manufacture and sale of tea and is not engaged in cotton manufacturing business at all; that while it intended to enter into cotton manufacturing purposes did not set up a cotton mill, but obtained operating rights from another company under the leave and licence agreement for the purpose of acquiring the profit-making apparatus for a duration of three years or a little more; that the business of running a cotton mill was not its own, but was only operating the said mill under leav ..... X X X X Extracts X X X X X X X X Extracts X X X X
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