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TMI Blog1939 (10) TMI 13X X X X Extracts X X X X X X X X Extracts X X X X ..... n (2) of Section 10 of the Act. Sub-section (2) of Section 10 enacts that in computing the profits and gains of a business certain allowance shall be made. The allowance mentioned in clause (ix) is "expenditure (not being in the nature of capital expenditure) incurred solely for the purpose of earning such profits or gains." It is contended that the sum claimed to be deducted is expenditure incurred solely for the purpose of earning the profits which have been assessed to tax. The late Maharaja was a shareholder in the Agra United Mills Ltd., and there is no dispute that in 1923 the Company was in very serious financial difficulties. The late Maharaja advanced to the Company a sum of 10 lacs of rupees. The plaintiffs in the suit against the Maharaja asserted that this was only a part of the money which the late Maharaja contracted to advance to the Company. According to the allegations in the plaint in the suit the then managing agents of the Company commenced negotiations with the late Maharaja for the purpose of obtaining his financial assistance in the affairs of the Company. It was alleged that the late Maharaja, through his agents, consented to a scheme whereby he w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is business operations. At the request of the assessee, however, the Commissioner referred to this Court the question whether the costs in question were legally a business deduction or not. This Court found itself unable to answer the question referred to it by the Commissioner without a further statement of facts. The Commissioner was, therefore, called upon to state whether the money-lending business of the late Maharaja and the assessee was such as would have included transactions of the kind into which he was alleged to have entered with the United Agra Mills Ltd. In response to an invitation by the Commissioner the assessee placed before him evidence of other transactions entered into by the late Maharaja which, it was said indicated that a transaction of the kind alleged in the suit against the late Maharaja was within the scope of his business. One of these was a loan to the Sun Jute Press. When the debtor defaulted in repayment of that loan the assessed sued him and in execution of the decree obtained in the suit he took possession of the debtors business and continued it. An advance to Tackers Press and Directories Ltd., again resulted in the assessee acquiring the propert ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... repelling allegations affecting the late Maharajas honour and for protecting his business against loss of capital. It is argued that had the suit succeeded the assessee would have had to part with a large part of his capital and that his primary object in defending the suit was to prevent this loss of capital. Hence it is contended that the expenditure was in the nature of capital expenditure and was excluded from the operation of clause (ix). The line between what is capital expenditure is one of considerable difficulty as has been pointed out in a number of English cases to which we have been referred. Examination of the facts of those cases only leads to the conclusion that the line of demarcation is so tenuous as to be almost imperceptible. What clearly emerges is that no general or comprehensive rule can be laid down but that each transaction must be judged in relation to its own circumstances. Reference was made to the case of Strong & Co. v. Woodifield 1906 A.C. 448. That was a case in which an inn-keeper was held not to be entitled to an allowance on account of damages which he had been compelled to pay to a guest who had been injured by a defective chimney in the premises ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... statute the provisions of which, as has frequently been observed, are not designed or intended to lead to logical conclusions. The contention that the suit against the late Maharaja was instituted against him not because he was a money-lender but because he was a wealthy nobleman is not, in my opinion acceptable. It was because the late Maharaja lent money to the Company that an opportunity was afforded to the plaintiffs to allege that the advance of 10 lacs of rupees actually made was only a part performance of a contract the scope of which was very much wider. It was the relationship of money-lender and borrower which provided a foundation on which the allegations against the late Maharaja were based and the main purpose of the suit was to obtain damages for the breach of an alleged money-lending transaction. Taking all the circumstances into consideration I would therefore hold that the deduction claimed falls within Section 10, sub-section (2), clause (ix) of the Act and would answer the reference accordingly. The assessee is entitled to his costs and to the refund of the one hundred rupees deposited for the reference. Hearing fee 10 (ten) gold mohurs. Meredith, J. - I agree ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e sense a temporary disbursement of capital, is not capital expenditure. The distinction can be clearly illustrated by an example. If a firm of ship carriers buys a ship to add to its fleet, that is capital expenditure; but if a firm, whose business is the buying and selling of ships for profit, buy a ship, that is not capital expenditure, but normal trading. In the one case the ship represents stock-in-trade, in the other it does not. Similarly, owning to the peculiar nature of the money-lenders business his money itself becomes his stock-in-trade. Having regard to this principle the ruling in In re Kangra Valley Slate Co. Ltd. (3 I.T.R. 324: I.L.R. 16 Lah. 479) is easily distinguishable. In that case expenses incurred in defending a suit were disallowed as capital expenditure, but it was a suit, the success of which would have involved not merely trading loss, but would have put an end to the entire business, and the very existence of the company was affected. Another ruling, Strong & Co. v. Woodifield 5 Tax Cas. 215; 1906 AC 448 relied on by the learned Advocate for the Income Tax authorities is really in my opinion in favour of the assessee in so far as it does lay down a pri ..... X X X X Extracts X X X X X X X X Extracts X X X X
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