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TMI Blog1953 (5) TMI 22X X X X Extracts X X X X X X X X Extracts X X X X ..... v), Indian Income-tax Act, 1922? 2. In order to answer these questions it is necessary to briefly give the facts of the case as given in the statement of the case by the Tribunal. An agreement Ex 'H' was entered into between the Tehri Garhwal State and the assessee, the Himalaya Rosin Turpentine Manufacturing Company, on 24-11-1937 which was to take effect from 1-12-1937. The clause of this agreement relevant to the present case is No. 11 which is as follows:- 11. That you will be responsible to extract rosin according to the specification and prescription prescribed in the standard books on the subject as is described in the schedule enclosed herewith. You will further be responsible to pay compensation for failure to obser ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ree accounts and to the disallowance of ₹ 5,000/- paid by the assessee firm as compensation of Tehri Garhwal State for breach of certain conditions of the lease, which the assessee held for extraction of rosin from State forests. The assessee attempted to extract more rosin by contravening the terms of the lease and for this unlawful gain he had to pay compensation to the State. On these facts, we see no reason why the sum of ₹ 5,000/- paid to the State be not allowed as a revenue expense. This compensation would in other words, mean 'royalty' for the rosin actually extracted or for an attempt to do it. In the circumstances of the case, we feel that payment of ₹ 5,000/-is an allowable deduction in assessee's ra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... amount expended in their usual course of business and that they had to pay more because they had extracted more rosin, but that is not what the question seems to contemplate. The question definitely puts it as fine under the penalty clause of the terms of the lease . Apart from that the question to be deter-mined still remains whether it falls within the words of the statute and is therefore properly deductable. Section 10 (1) and 2 (xv) provides as under: 10. BUSINESS.-- (1) The tax shall be payable by an asses see under the head 'profits and gains of business, profession or vocation in respect of the profit or gains of any business, profession or vocation carried on by him. (2) Such profits or gains shall be computed after ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... - '(1906) 95 LT 241 (A)': I think that the payment of these damages was not money expended 'for the purpose of the trade'. These words are used in other rules, and appear to me to mean 'for the purpose of enabling a person to carry on and earn profits in the trade' c. I think that the disbursements permitted are such as are made for that purpose. It is not enough that the disbursement is made in the course of, or arises out of, or is connected with the trade, or is made out of the profits of the trade. It must be made for the purpose of earning the profits. 6. In -- 'Commrs. of Inland Revenue v. Warnes and Co. Ltd.', (1919) 2 KB 444 (C), the assessee was sued for a penalty in the King's Bench Di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1920) 2 KB 553 at p. 565 (D). The Master of the Rolls said at p. 566: That, as it seems to me, was not a loss connected with the business, but was a fine imposed upon the company personally, so far as a company can be considered to be a person, for a breach of the law which it had committed. It is perhaps a little difficult to put the distinction into very exact language, but there seems to me to be a difference between a commercial loss in trading and a penalty imposed upon a person or a company for a breach of the law which they have committed in that trading. For that reason I think that both the decision of Rowlatt J. in this case, and his former decision in --'(1919) 2 KB 444 (C)', which he followed, were right, and that th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... #39;Spofforth and Prince v. Golder', (1945) 1 All ER 363 (E). 9. In India a similar case was decided by the Madras High Court in -- 'Mask and Co., Panruti v. Commr. of Income-tax, Madras' AIR 1943 Mad 670 (F). In this case the assesset was a firm carrying on business in crackers It had entered into a contract with the other traders in the same business under which its goods were to be sold at a specified rate. In breach of that contract the assessee sold crackers at lower rates and the other parties filed a suit to recover damages by reason of the breach of contract on the part of the assessee The Court found the assessee to be liable in damages to a sum of ₹ 5,000/- which the assessee claimed to be entitled to deduct a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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