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TMI Blog1976 (4) TMI 21X X X X Extracts X X X X X X X X Extracts X X X X ..... bonded abrasive products and coated abrasive products. One of the terms of the agreement, namely, clause (6), provided for the foreign company furnishing necessary technical personnel for the operation of the plant of the assessee-company. Clause (7) of the agreement provided for payment of remuneration to the said foreign personnel and stated: "It is also agreed that the salaries and expenses in India of personnel of Carborundum or of its subsidiaries, which (sic) in India to render services to Carborundum Universal will be paid by Carborundum Universal together with their necessary and reasonable travelling expenses." One of the orders of appointment of a person by name T. W. Jackson as general works manager in the assessee's factory at Thiruvottiyur has been enclosed as annexure "E" to the reference. Paragraph 9 of this annexure "E" stated: "Pension scheme coverage or equivalent will be provided for you in the U. K. or in India, as may be practicable, when you become eligible to join such a scheme. The cost of pension contributions, excluding voluntary, will be borne by the company (the assessee)." For the accounting year relevant to the assessment year 1964-65, the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ry to refer to the relevant statutory provisions. Section 28 of the Act, so far as is relevant for the purpose of this case, states that the income shown thereunder shall be chargeable to income-tax under the head, "profits and gains of business or profession" and under item (i) is shown "the profits and gains of any business or profession" which was carried on by the assessee at any time during the previous year. Section 29 states that the income referred to in section 28 shall be computed in accordance with the provisions contained in sections 30 to 43A. Sections 30 to 43A deal with specific items which may be deducted in computing the profits and gains of business. Section 36 has the marginal note "other deductions" and it enumerates certain deductions therein which should be made in computing the income referred to in section 28. One such deduction is contained in section 36(1)(iv) and the same is as follows: "any sum paid by the assessee as an employer by way of contribution towards a recognised provident fund or an approved superannuation fund, subject to such limits as may be prescribed for the purpose of recognising the provident fund or approving the superannuation fund, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent is one thing and the eligibility of that payment for deduction is another. Once the nature of the payment is one as is provided for in the statutory provisions, its eligibility for deduction has to be found within the four corners of the said statutory provisions and when it is found that the said payment is not eligible for deduction under the particular statutory provision, it cannot be held to be deductible under the general principle, though the amount has been spent for the purpose of earning an income and, therefore, for arriving at the true profits and gains of the business commercially that amount should be deducted. In this particular case, as we have pointed out already, there can be no dispute about the fact that the nature of payment is one as described in section 36(1)(iv) but the said payment cannot be deducted under section 36(1)(iv) because it is not a contribution to an approved superannuation fund. In view of this position it cannot be held though the payment is not deductible under section 36(1)(iv) still it can be deducted under section 28 of the Act on the general principle of arriving at the true profits and gains of the business in a commercial sense. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tal expenditure, payment of interest on the borrowed capital is not a capital expenditure and that a partner of a registered firm earning agricultural income is entitled to claim by way of deduction interest paid on the capital borrowed by him for acquiring the estate giving rise to the income under section 5(e) of the Madras Agricultural Income-tax Act, 1955, though not under section 5(k) and contended that the decision supported the claim of the assessee in the present case. We are unable to accept this argument. That decision dealt with section 5(k) and section 5(e) of the Madras Agricultural Income-tax Act, 1955. Section 5(k) of that Act provided: "any interest paid in the previous year on any amount borrowed and actually spent on the land from which the agricultural income is derived: Provided that the need for borrowing was genuine having due regard to the assets of the assessee at the time: Provided further that the interest allowed under this clause shall be limited to nine per cent. on an amount equivalent to twenty-five per cent. of the agricultural income from the land in that year." Section 5(e) of that Act reads: "any expenditure incurred in the previous year ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 5(k) of the Madras Agricultural Income-tax Act, 1955. In this case, as we have pointed out already, the Tribunal itself held that section 37 does not apply because the payment to the superannuation fund in the U.K. is of the nature contemplated by section 36(1)(iv) of the Act and, therefore, the Tribunal rested its conclusion only on the general commercial principle with reference to the ascertainment of "profits and gains of business" occurring in section 28 of the Act. That leaves out the two decisions on which the Tribunal itself relied in the present case. As we have pointed out already, the first decision is Commissioner of Income-tax v. Mysore Sugar Co. Ltd. [1962] 46 ITR 649 at 652 (SC). The Tribunal has relied on the following passage, which occurs after the Supreme Court has referred to clauses (i) to (xiv) of section 10(2) of the Indian Income-tax Act, 1922: "The clauses expressly provide what can be deducted; but the general scheme of the section is that profits or gains must be calculated after deducting outgoings reasonably attributable as business expenditure but so as not to deduct any portion of an expenditure of a capital nature. If an expenditure comes withi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he mercantile system of accounts adopted by it, it credited in its accounts the sum of Rs. 43,692 representing the full sale price of lands. At the same time, the assessee also debited an estimated sum of Rs. 24,809 as expenditure for the developments it had undertaken to carry out, even though no part of that amount was actually spent. The department disallowed the expenditure. The Supreme Court held that the sum of Rs. 24,809 represented the estimated amount which would have to be expended by the assessee in the course of carrying on its business and was incidental to the business and, having regard to the accepted commercial practice and trading principles, was a deduction which, if there was no specific provision for it under section 10(2) of the Income-tax Act, was certainly an allowable deduction, in arriving at the profits and gains of the business of the assessee, under section 10(1) of the Act, there being no prohibition against it, express or implied, in the Act. The Supreme Court also pointed out that the expression "profits or gains" in section 10(1) of the Indian Income-tax Act, 1922, had to be understood in its commercial sense and there could be no computation of suc ..... X X X X Extracts X X X X X X X X Extracts X X X X
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