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TMI Blog1978 (3) TMI 98X X X X Extracts X X X X X X X X Extracts X X X X ..... ndifferent management and was about to close down in 1963, and, then, the assessee being interested in a regular and ensured supply of goods from that company, in its own business interest, purchased in May and September, 1963, in all, 1,633 of its shares for Rs. 52,534, thereby to acquire about 51% of its total subscribed capital of 3,200 shares and thus a controlling interest therein. However, even such intervention of the assessee did not save the situation, as that manufacturing company continued to show frightful losses even in the years that followed. All attempts to stop the loss failed and ultimately the factory itself was closed down in 1966. It was when matters reached such a head that in this assessment year the assessee for good sold those shares and realised only Rs. 10,000. The assessee-company claimed before the Income-tax Officer that the loss resulting from sale of those shares amounting to Rs. 42,327 was a revenue loss which should be allowed as a deduction in computing the business income. This claim was, however, disallowed by the Income-tax Officer. The assessee went up in appeal before the Appellate Assistant Commissioner who held that the loss on the sale o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ver that manufacturing company and the idea was to run the business to the best interests of the assessee. In the circumstances, it was contended that the said loss was incidental to the assessee's business. It was further contended that with the same object the assessee had during all these years also advanced amounts to the company in its anxiety to salvage it. Thus, in short, it is argued that those shares were not the capital assets of the assessee and, therefore, the said loss cannot be in the nature of a capital loss. In this behalf Mr. Banerjee contends that it was apprehended by the assessee that there might be a fall in the supplies of cutlery and crockery manufactured by M/s. Lajpat Potteries Pvt. Ltd. and that for getting rid of such impediment the assessee purchased those shares; and, therefore, the acquisition of shares was made in the interest of the principal business of the assessee as distributor of goods. Thus, the amount spent for the acquisition of such shares was not in the nature of capital expense because no asset of an enduring nature was created thereby. In support of his argument he relies on the decision of the Supreme Court in Commissioner of Income-tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd until the amount was paid in full the assessee-company shall pay simple interest at 6% on so much of the balance as remained due. In accordance with these agreements, the assessee-company paid interest on the balance outstanding in the relevant accounting year and it was held by the Supreme Court that the interest paid by the assessee-company was a permissible deduction under section 10(2)(xv) of the Indian Income-tax Act, 1922. Since the transaction of acquisition of assets was closely related to the commencement and carrying on of the business of the assessee-company, the interest paid on the unpaid balance of the consideration for the assets acquired was also held to be a business expenditure. The aforesaid case being ex facie distinguishable on facts, we will now pass on to the case of Mallett v. Staveley Coal and Iron Co. Ltd. [1928] 13 TC 772 (CA) cited by Mr. Banerjee. In this case, the colliery company had a certain acreage under lease, and in two cases they surrendered some of their acreage and had to pay to get the reversioner to accept the surrender. The opinion of Rowlatt J., namely, that it was a capital expenditure, was upheld by the Court of Appeal and, therefor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... amount paid for the lease was a capital expenditure because the stones in situ were not the assessee's stock-in-trade in a business sense but a capital asset from which after extraction he converted the stones into stock-in-trade. He also refers to the case of English Crown Speller Co. Ltd. v. Baker (Surveyor of Taxes) [1908] 5 TC 327 (KB). In this case, the English company carried on the business of zinc smelting, for which it required large quantities of "blende". To get supplies of blende, a new company called the Welsh Crown Spelter Company was formed which received assistance from the English Company in the shape of advances on loan. Later, the English company was required to write off pound 38,000 odd. The question arose whether the advance could be said to be an investment of capital, because, if it was, the English company would have no right to deduct the amount. If, on the other hand, it was money employed for the business, it could be deducted. Bray J., who considered these questions, observed at pages 337, 338: "If this were an ordinary business transaction of a contract by which the Welsh Company were to deliver certain blende, it may be at prices to be settled h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the business of the appellant-company. Mr. Sengupta also referred to the decision of the Supreme Court in A. V. Thomas and Co. Ltd. v. Commissioner of Income-tax [1963] 48 ITR 67 (SC). In this case, T was a common director of the assessee-company and of a private company. The private company took up in 1948 the promotion of a textile mill and T financed the private company to the extent of Rs. 6,05,072. The board of directors of the assessee-company approved the action taken by T and in September, 1950, passed a resolution that the amount of Rs. 6,00,000 should be shown in its accounts as an advance for the purchase of shares in the textile mill and the sum of Rs. 5,072 as sundry advances due from the promoters of the textile mill. The project of promoting the textile mill, however, failed. The private company paid back to the assessee on December 7, 1951, the sum of Rs. 2,00,000. The assessee wrote off the balance on December 31, 1951, which was the date on which its accounting year ended, and claimed the balance as a bad debt or alternatively as a business expenditure for the assessment year 1952-53. It was held that the advances made by the assessee-company to the private ..... X X X X Extracts X X X X X X X X Extracts X X X X
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