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TMI Blog1982 (1) TMI 24X X X X Extracts X X X X X X X X Extracts X X X X ..... , respectively, were admissible deductions in computing the income of the assessee-company for the respective assessments ?" The facts giving rise to this reference are set out in a statement of case which is a common statement drawn up by the Income-tax Appellate Tribunal on six reference applications by the Department. The relevant assessment years are 1964-65, 1965-66, 1966-67, 1967-68, 1968-69 and 1969-70, the relevant previous years being the calendar years 1963 to 1968 respectively. The assessee-company is a trading concern engaged in the business of import and sale of commodities. It had advanced a sum of Rs. 2,30,000 to a sister concern, M/s. Gill Amin and Company, in 1959. No interest was charged on this loan for that year. For the next year interest was charged in the sum of Rs. 12,937 and was brought to tax as income under the head " Business ". The closing balance of Rs.2,42,937 was transferred to a new account styled as Gill Amin Steamship Co. Pvt. Ltd. Loan Account during the succeeding year 1961. Interest of, Rs. 17,250 was charged on this account for that year and brought to tax in the same manner as aforesaid. For the calendar year 1962 the interest credited to t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n of the sale of the ship to the assessee and he implied that it was a colourable transaction. The AAC held that there was nothing to show that the money was advanced to Gill Amin Steamship Co. Pvt. Ltd. in the course of money-lending business, as no such business was carried on by the assessee and held that, consequently, the acquisition of the said ship was not in the course of any business as a financier. On these conclusions, he held that the expenditure incurred by the assessee in the maintenance of the ship did not constitute a revenue deduction and could not be allowed to be deducted and held that the said ship did not constitute the assessee's stock-in-trade. The assessee appealed to the Income-tax Appellate Tribunal. The Tribunal, after considering the submissions made before it, held that the said ship, which was placed as security with the assessee, who later on acquired it in the settlement of the loan advanced by it, constituted stock-in-trade of the assessee and the, amounts spent for preservation of stock-in-trade would naturally be expenditure allowable as revenue expenditure. The Tribunal rejected the finding of the AAC that the transaction was colourable one and h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Federal Court of India. In his judgment Mahajan J. (as he then was), cited with approval the decision of this court in Himatlal Motilal and Ramanlal Lallubhai v. CIT [1932] 6 ITC 159, and held that the said decision was authority for the proposition that where, in part satisfaction of a mortgage debt, the mortgagee purchases mortgaged property and sells it later on, he cannot claim the loss as an allowable business loss in the loan transaction. In that case it was held by the Bombay High Court that the loss was the loss of capital invested in the purchase of the property. Mahajan J. went on to observe that ownership of properties, even if purchased from a source which originally was employed in the money-lending business, does not automatically make such properties part of such business, in the absence of any finding that the income of these properties was being used in that business or that those properties were subsequently treated as stock-in-trade of that business except perhaps in the case of banking institutions. Reliance was also placed by Mr. Joshi on the decision of the Gujarat High Court in H. Mohmed Company v. CIT [1977] 107 ITR 637, where it was held, inter alia, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... laimed this amount as a bad debt, which was allowed in a previous assessment. In 1948 the assessee sold half the area of the land purchased by him in 1933 for Rs. 93,313. The ITO held that the property purchased by the assessee in 1933 was stock-in-trade of his money-lending business and the excess amount realised by the assessee over the cost was business, income. This view was upheld by the Income-tax Appellate Tribunal as well as the Allahabad High Court. On appeal to the Supreme Court, it was held, affirming the decision of the High Court, that there was no infirmity in the reasoning or the conclusion of the Tribunal of the facts. The Supreme Court in that case cited with approval the reasoning given by the Tribunal. That reasoning runs as follows (p. 415): " It is impossible now to allocate the sum of Rs. 4,763, written off as a bad debt between the various items which went up to make the total of Rs. 29,000 and odd due to the assessee and in respect of which he was able to secure a decree only for Rs. 25,000. There can be no doubt, however, that at least some part of this bad debt related to monies laid out in connection with the property purchased by the assessee in 1933. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... what we have already held earlier. Coming now to question No. 2, it is common ground that, in view of what we held with respect to question No. 1, the same must be answered in favour of the assessee. We may, however, further point out, in regard to this question that, on the facts of this case, it would have to be answered in favour of the assessee, irrespective of the view taken by us on question No. 1. The facts clearly show that the aforesaid ship was acquired by the assessee in the course of the business of the assessee, irrespective of the fact whether that business was of money-lending or not, the dispute only being as to whether it constituted a capital asset or stock-in-trade. Even on the assumption that the said ship was a capital asset of the said business, we fail to see how expenditure incurred in maintaining and preserving the same could be considered not to be revenue expenditure. In this regard we may refer to the decision of a Division Bench of this court in All India Reporter Ltd. v. CIT [1963] 49 ITR 196, where it was held that the expenditure incurred by a company in defending itself in a petition filed by a shareholder for winding up the company, is expenditu ..... X X X X Extracts X X X X X X X X Extracts X X X X
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