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TMI Blog1981 (11) TMI 14X X X X Extracts X X X X X X X X Extracts X X X X ..... 's business ? 2. Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the sum of Rs. 50,000 paid to M/s. Voltas Ltd. was allowable expenditure in computing the profits and gains of the assessee's business ? " This reference is in respect of the assessment year 1965-66. The assessee is a company incorporated in the U.S.A. in 1904 under the laws of the State of New York. While engaged in the business of execution of contracts the assessee extended its business activities to India. It entered into, among others, one contract with the Orissa Mining Co. for erection of a ship loading plant at Paradeep Port and another contract with Neyveli Lignite Corporation for erection of a conveying plant at Ne ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... were not made for the initiation of any business of the assessee. The finding of the AAC that the payments were made for the initiation of the business of the assessee was disputed as factually incorrect. A statement of the assessee's receipts from the contract business between 1958-59 and 1965-66 was placed before the Tribunal in order to show that the assessee's contract business in India started as early as 29th October, 1957, when it entered into a contract with M/s. Hindusthan Steel Ltd. for the erection of a crushing and handling plant. It was further submitted that the payments were closely related to and formed an integral part of the assessee's profit-making process and that the making of those payments was not a condition of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was a condition to be fulfilled by the assessee in order to be able to execute the two contracts and earn the profits therefrom. Even without making those payments the assessee could have executed the contracts and earned profits. The commission paid to those two companies was but reward for the assistance rendered by them in securing the contracts. Since payment of such commission was incidental to the assessee's business which consisted intaking up contracts and executing these and as no profit-making machinery was set up or any advantage or asset of an enduring nature came into existence as a result of those payments and as those payments were not a condition precedent to the assessee executing the contracts and earning profits therefrom ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... decision of the Privy Council in the case of Tata Hydro-Electric Agencies Ltd. v. CIT [1937] 5 ITR 202 at 209, where their Lordships, though not dealing with revenue expenditure, yet dealing with expenditure which was not incurred solely for the purpose of the business, observed as follows: " Their Lordships recognise, and the decided cases show, how difficult it is to discriminate between expenditure which is and expenditure which is not, incurred solely for the purpose of earning profits or gains. In the present case their Lordships have reached the conclusion that the payments in question were not expenditure so incurred by the appellants. They were certainly not made in the process of earning their profits ; they were not payments to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rly an outlay necessary for the earning of a profit. In the case of Robert Addie & Sons' Collieries Ltd. v. Commissioners of Inland Revenue [1924] 8 TC 671 (C Sess), the Lord President Clyde, dealing with corresponding words in the British Income-tax Act says at p. 235: 'What is " money wholly and exclusively laid out for the purposes of the trade " is a question which must be determined upon the principles of ordinary commercial trading. It is necessary, accordingly, to attend to the true nature of the expenditure, and to ask oneself the question. Is it a part of the company's working expenses; is it expenditure laid out as part of the process of profit earning ? " These principles have been enumerated and clearly laid down by the Supreme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... It was, therefore, sought to be urged that this was not incidental to the carrying on of the business. It was not wholly and exclusively incurred for the purpose of the business. It was factually not disputed that there was no extra-commercial consideration in the payments involved. In that view of the matter we are of the opinion that the Tribunal was right in the view it took about these payments. We may incidentally refer to the decision of the Andhra Pradesh High Court, which was referred to on behalf of the Revenue, in Vizagapatnam Sugars and Refinery Ltd. v. CIT [1963] 47 ITR 139 (AP). But in view of the facts of the case it is not necessary to refer to these in detail. Our attention was also drawn to the observations of the Divisio ..... X X X X Extracts X X X X X X X X Extracts X X X X
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