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TMI Blog2000 (10) TMI 7X X X X Extracts X X X X X X X X Extracts X X X X ..... n law in confirming the disallowance of the loss of Rs.2,00,000 claimed by the assessee, as capital loss?" The factual position giving rise to the reference is as follows: The assessee, a public limited company, during the relevant period carried on business in the purchase and export of industrial alcohol, bulk handling and storage of liquid chemicals and acted as agents of the State Trading Corporation of India (in short "the Corporation") for storage and handling of their vegetable oils. For the assessment year 1973-74, relating to the previous year ending on September 30, 1972, the assessee disclosed a net income of Rs.3,70,840. It claimed a sum of Rs.2,93,876 as bad debts written off in respect of the amounts due from Digvijay Spinn ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... peal, the Appellate Assistant Commissioner (in short "the AAC") held that clause (5) of the agreement dated February 27, 1967. indicated that the amount paid was a deposit and did not relate to instalments. In other words, he held that it was only a payment of capital nature, i.e., deposit, which could earn interest and not payment of revenue nature and therefore it did not satisfy the requirements of a bad debt. He confirmed the Assessing Officer's view that the loss was capital in nature. The assessee carried the matter in further appeal before the Tribunal. Referring to various clauses of the agreement, the Tribunal held that the amount in question was a capital loss and not a business loss. On being moved for reference as aforestated qu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ut 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prospect that it might be a temporary investment and not a permanent one-in other words that the capital might later be withdrawn from the business.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 'what is the object of the expenditure?' and it must be answered from the standpoint of the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a revenue loss. In the first, it bears the character of an investment, but in the second, to use a commonly understood phrase, it bears the character of current expenses." After discussing the three English decisions in English Crown Spelter Co. Ltd. v. Baker [1908] 5 TC 327 (KB); Charles Marsden and Sons Ltd. v. IRC [1919] 12 TC 217 (KB) and Reid's Brewery Co. Ltd. v. Male [1891] 3 TC 279 (QB), the Supreme Court further observed as follows at pages 654 and 655 of the reports: "These cases illustrate the distinction between an expenditure by way of investment and an expenditure in the course of business, which we have described as current expenditure. The first may truly be regarded as on the capital side but not the second". In Ramchand ..... X X X X Extracts X X X X X X X X Extracts X X X X
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