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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 ..... 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 in those proceedings and entered into a leave and licence agreement with that company. Originally the agreement was for a period of three years from 1st April, 1963 to 31st March, 1966, which was extended by mutual agreement upto 30th June, 1966. Clause 13, which is relevant for our purpose in the agreement, reads as follows : "In the event of any new and complete unit or plant and/or machinery and/or reequipment being installed by the licencee at ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 the assessee in any assessment year. He also held that the said sum did not represent the money lent in the ordinary course of business. He further noticed that even otherwise the said sum was not entitled to deduction because it had not become a bad debt in the relevant year of account and the assessee made no effort to recover the same. On appeal against the assessment order, the AAC held that the advance given by the assessee-company could not be recov ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ourt 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 advanced a sum of Rs. twenty lakhs so that new plants and machinery could be bought by M/s Saksaria Cotton Mills Ltd. for the benefit of the assessee during the period of the agreement. Thus, the assessee had the advantage of using a new and more modern profit-making apparatus. When the company itself had not treated the advance of Rs. twenty lakhs to M/s Saksaria Cotton Mills Ltd. as by way of a loan transaction and the amount had been treated by the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 existing business and the outlay was incurred for the purpose of acquiring the technical know-how in relation to its business and considering the rapid strides in science and technology is to pigeonholing an outlay, such as in this case as capital. It was on that basis the Court held that though lumpsum payment had been made once for all it was not capital in nature and attracted the deduction under s. 37 of the IT Act. Again, the learned counsel for the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 assessee acquire a source of profit of income when it purchased the looms in question. The expenditure incurred was primary and essentially related to the operation or working of the looms which constituted the profit-making apparatus of the assessee and was expenditure laid out as part of the process of profit-earning. It was on that basis the claim was allowed. Therefore, that decision will not help the assessee in the present case. 7. In CIT vs. Hasimara Ind ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erating 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 leave and licence agreement; that the amount of advance in a sum of Rs. twenty lakhs was given not for its own purpose by way of business expenditure for modernising the mill, but as capital to the lessor who in turn had to modernise the mill. In the resolutions made by the board of directors, it was clear that the transaction entered into was not in the nature of a loan transaction or a moneylending transaction and thus the loss suffered by the assessee was a cap ..... X X X X Extracts X X X X X X X X Extracts X X X X
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