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TMI Blog1984 (8) TMI 103X X X X Extracts X X X X X X X X Extracts X X X X ..... payment. It was the assessee's claim that the payment was meant to be an advance for supply of batteries in future. The assessee had relied upon a letter placing an order for 350 batteries of various types valuing at Rs. 1,27,000, for which this advance of Rs. 1 lakh was paid by cheque. The company's receipt, dated 17-6-1974, also evidenced the payment itself as well as the nature of the payment. However, the ITO was not satisfied that it was simply an advance for purchase of batteries. In his opinion, it was something more. The assessee had already a technical know-how agreement with Northern India Batteries Ltd. This agreement was dated 29-12-1973, while the advance was paid on 29-3-1974. The assessee was to get a Jump sum payment of Rs. 5,00,000, in five instalments, besides royalty at 5 per cent. It was also to get 50 per cent of the production of the said company for its own distribution. He, therefore, inferred from this arrangement that the assessee was interested as a promoter of the said company. He had also seen the correspondence between the assessee and Northern India Batteries Ltd. of Ghaziabad. This correspondence also revealed that the assessee was interested in fin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee's claim was still allowable. The assessee not only manufactures batteries by itself, but also gets it done through others. It has an arrangement with Power-Pack at Haryana for manufacture of motor-cycle batteries. There is also a similar arrangement with M/s Kasturi for manufacture of batteries at Hyderabad. The assessee attempted a non-exclusive licensing arrangement for manufacture of batteries on a very similar basis at Ghaziabad. Dividend, if any, on promised share capital, technical fees and royalty would have been assessable as revenue receipts. There was, therefore, no reason why the loss should not be considered to be on the same account. The assessee's interest in finding finance for Ghaziabad concern, as evidenced from the correspondence, does not mean that the assessee was a partner with the Ghaziabad firm. It was interested in ensuring supplies of batteries at cheaper price for distribution in Delhi market. He also pointed out to the decision of the Supreme Court in the case of Empire Jute Co. Ltd. v. CIT [1980] 124 ITR 1, wherein it was held that even any enduring advantage in the revenue filed would not constitute a right of capital nature. If such an enduring ad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed 29-3-1974. The receipt itself is dated 17-6-1974. We, therefore, share the view of the authorities that the amount is not one which was paid merely for purchase of batteries, though it was probably meant to be adjusted against such future supplies. Since no attempt had been made by the authorities to show that either the order or the receipt are entirely fabricated or otherwise unreliable, we have to consider them as part of the other records like correspondence. Reading together the entire matter, we are of the view that there was a close relationship between the assessee-company and the Ghaziabad company. The assessee was no doubt interested in its promotion as a potential collaborator and supplier of goods. It is on these facts that we have to come to a finding as regards the admissibility or otherwise of the claim for deduction as a revenue loss. 6. Though the ITO had tried to say that the assessee was trying to ward-off competition by this payment, there is absolutely no material to suggest that there was any competition from this company either at the time of payment or even later. If the assessee was itself promoting the company, it hardly makes sense that the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the greater risk involved. It made it clear that it was towards supply of batteries, so that it can have right over the goods as soon as they are produced. Even if the amount is treated as a simple loan, it is difficult to imagine that the amount was intended for any other purpose than for obtaining batteries, inasmuch as, it is the only way that the amount could be adjusted. The collaboration agreement itself contemplated supplies of 50 per cent of batteries expected to be manufactured. Hence, the relationship between the assessee and the Ghaziabad company is one as between the purchaser and smaller of batteries or as between a supplier and recipient of technical know-how. In either event, there is no element of joint venture as we understand it. 8. As for the possible argument that the assessee was acquiring a new source of supply, we find that the factory belonging to another could hardly be considered as the assessee's own source of supply. The case law holding that the payment for a source of supply is of a capital nature, has developed in respect of ' mine ' cases. It has been held that receipts and payments in connection with the acquiring or disposing of leaseholds of m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s, the contribution could be taken to be a capital outlay. We have to point out that the authorities have not suggested that the assessee had any interest other than the proclaimed ones. None of the directors in the assessee-company are stated to be interested in the Ghaziabad venture. No other collateral interests other than business ones have been suggested. Even if we were to take the view that the entire venture is one of the assessee or that the assessee was having vital interest in the Ghaziabad matter, we cannot possibly say that it is a capital outlay as long as it is for production of batteries specially in the light of the fact that there are two other units with similar interest. The enduring advantage, if any, which might have accrued, is in the revenue field. It is in this view, we find that though we have substantially accepted the departmental inference on facts, we are unable to say that the amount will have to be disallowed as a capital payment. If the outlay was business one for acquiring batteries which are the assessee's stock-in-trade, the loss thereof will have to be allowed as a business loss. It is clear that the assessee had no prospect of recovery during t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ax. Here, we are of the view that the considerations are different. Though the payment is not in the nature of penalty, it cannot be considered as an allowable deduction under section 37 of the Act, because income-tax itself is not an allowable deduction. Sales tax and the interest thereon are trading liabilities. They have to be allowed before income is determined. It is not so with income-tax. The character of interest on income-tax cannot be different from income-tax itself. It is for this reason that we have to allow the departmental appeal in respect of the payment of Rs. 5,269. The addition made by the ITO to this extent stands restored. 11. The third ground in the departmental appeal relates to the question of treatment to be accorded to the salaries and perquisites paid to the managing director as to whether the allowance of the same should be re-valued under section 40(c) or section 40A(5) of the Act. This issue has been decided by a Special Bench of this Tribunal in the case of Geoffrey Manners & Co. Ltd. v. ITO [1983] 3 SOT 40 (Bom.) in tax-payer's favour, holding that section 40(c) should apply and not section 40A(5). Since this is the view taken by the first appellat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the assessee's favour in paragraph 8 supra. Since the assessee's appeal has been allowed, the assessee's cross-objection has become ineffective and will, therefore, be treated as infructuous. We will, accordingly, treat this ground as having been dismissed. 16. The last ground relates to the assessee's objection against levy of interest of Rs. 46,541 under section 215 of the Act. We find that the issue has been remitted by the Commissioner (Appeals) to the ITO for examining the assessee's objection. The learned counsel for the assessee expressed an apprehension that the ITO may understand the order of the Commissioner (Appeals) as one which directs mere recalculation of interest. The first appellate authority has stated in the operative part of his order that ' He will recalculate interest if the said section is applicable '. The earlier part of the order also asks him to examine the claim of the assessee that no interest should have been levied. We, therefore, find that there is no cause for any apprehension on the part of the assessee. The entire matter has been restored to the ITO. Even if there be any further doubt on this matter, this order should make it clear. We are, th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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