Judgments
Judgments
  1. Home
  2. /
  3. High Court Of Judicature at Allahabad
  4. /
  5. 1976
  6. /
  7. January

Hari Shanker Gauri Shanker vs Commissioner Of Income-Tax

High Court Of Judicature at Allahabad|27 April, 1976

JUDGMENT / ORDER

JUDGMENT C.S.P. Singh, J.
1. The Income-tax Appellate Tribunal, Allahabad, in compliance with orders passed by this court has referred the two questions for our opinion:
"1. Whether, in law, the expenditure of Rs. 28,030 was not deductible, assuming that the loan, in connection with which it was incurred, was raised for the capital or revenue requirements of the assessee's fresh business ?
2. Whether, on the facts and circumstances of the case and looking to the nature of such expenditure as related to the consumption of stores and payment of wages, the Tribunal was right in law in holding that such expenditure to the extent of Rs. 26,321 represented expenditure of capital nature and not admissible for deduction under Section 37 of the Income-tax Act, 1961 ?"
2. The assessee, a registered firm, has two factories. One factory is engaged in the manufacture of tin containers of various sizes, while the other in manufacture of associated wire and wire products. A return was filed for the assessment year 1965-66 showing an income of Rs. 1,40,231. Thereafter, a return was filed on March 23, 1956, showing a total income of Rs. 2,05,131. The Income-tax Officer rejected the account version of the assessee. So far as the business of manufacture and sale of tin containers was concerned, he made an addition of Rs. 2,50,000 to the gross profit. Amongst the additions made by the Income-tax Officer, there was an item of Rs. 1,10,000 which the Income-tax Officer had disallowed as being expanses of capital nature. This was reduced by the Appellate Assistant Commissioner to the tune of Rs. 26,321. The Income-tax Officer had made this addition on the ground that the raw material consumed and the wages paid were excessive, and that the amount claimed as business expenditure partook expenditure of the capital nature. The conclusion of the Income-tax Officer that the consumption of stores and expenditure on wages was excessive, was based on a report of a consulting engineer which was furnished by the assessee before the financial corporation for obtaining a loan of Rs. 2,95,000. According to the report, the value of the plant and machinery was Rs. 6,16,140 on December 12, 1962, against which the assessee had shown a value of Rs. 1,70,175 in the balance-sheet. He also relied on a letter of November 14, 1963, sent by the assessee to the U.P. Financial Corporation. It was stated that the assessee's plant and machinery were of a most modernised type. Taking all these facts into account the Income-tax Officer took the view that certain items of stores were not used and wages not paid in the assessee's factory but were utilised by the partners of the assessee-firm for their personal properties and as such deleted, on estimate, an amount of Rs. 1,10,000 from stores consumed and wages paid.
3. In appeal before the Appellate Assistant Commissioner, the assessee filed a summary of the expenditure under the two heads "Stores and wages". After considering this fact, the Appellate Assistant Commissioner came to the conclusion that the Income-tax Officer erred in relying on the report of the consulting engineer as that report related to a point of time much anterior to the start of the accounting year relevant to the assessment year 1965-66. As respects the letter sent by the assessee to the bank, that too, in the view of the Appellate Assistant Commissioner, could not lead to the disallowance of the huge amount of Rs. 1,10,000 as on account of being of a capital nature. The Appellate Assistant Commissioner as such allowed the expenditure claimed except to the extent of Rs. 26,321. The item in respect of which the expenditure was allowed included screen, lens, electric blower, fire extinguishers, tin sheet, cement pipe, wall-clock, power press, ceiling fan, exhaust fan, table fan, hand presses, testing pump, drill machine, platform scale, motors, typewriter, switch, drill machine and hand press fly. The Appellate Assistant Com-
missioner took the view that expenses incurred in the purchase of these items represent expenditure of a capital nature. The Tribunal has upheld the view that the expenses incurred in the purchase of these items represented expenditure of a capital nature. Apart from this disallowance, the Income-tax Officer had also disallowed an amount of Rs. 28,030 on account of expenses incurred in taking loans from the U.P. Financial Corporation. These expenses had been incurred for the legal fee, cost of general stamp, registration charge and commitment levy paid to the U.P. Financial Corporation which granted a loan of Rs. 8,00,000. The loan was taken for purposes of purchasing new machinery from Japan for setting up a new factory for extension of the plant and machinery required in connection with manufacture of tin containers. The new machinery was to be installed, it appears, in a new factory which was being built by the assessee. The Appellate Assistant Commissioner, following the decision of the Supreme Court in the case of India Cements Ltd. v. Commissioner of Income-tax [1966] 60 ITR 52 (SC), allowed the expenditure. The Tribunal, however, held that the Supreme Court decision did not lay down a general proposition that all expenditure incurred by an assessee for setting up a new business was allowable. In this view of the matter, it remanded for investigation as to whether the loan was raised for a business which was not in existence and, therefore, whether the expenditure was allowable under any of the sections from Sections 30 to 37 of the Act. We will consider the second question first.
4. We have already set out the items for the purchase of which the expenditure was incurred, the purchase of which has been held to be of a capital nature. There is no finding either by the Appellate Assistant Commissioner or the Tribunal that these articles were purchased (sic) by way of expenditure incurred on articles of the nature which have been set out by the Appellate Assistant Commissioner have, in all circumstances, to be treated as business expenses. There may be cases, and the present case appears to be one, where the expenditure incurred can be treated as a capital expenditure. In view of the fact that the purchases made by the assessee were assets of an enduring nature and would enure to the benefit of the assessee for a considerable period of time and further that they were not purchased by way of replacement, it is not possible for us to hold that the disallowance in respect of these items is incorrect.
5. We now come to the first question. We have already noticed that the Tribunal has remanded this issue for the purposes of finding out whether the loan was raised for business which was not in existence and then to ascertain whether it was allowable under any of the sections from Sections 30 to 37 of the Act.
6. We are of the view that the first question does not arise out of the order of the Tribunal and, at any rate, it will not be appropriate to answer this question without a finding being given as to the circumstances in which the loan was raises. Counsel for the assessee urged that in view of the decision of the Supreme Court in the case of India Cements Ltd. v. Commissioner of Income-tax [1966] 60 ITR 52 (SC) inasmuch as the object for which the loan is raised is inconsequential, the question referred should be answered.
7. We do not want to express any opinion as to whether the decision in India Cements Lid's case [1966] 60 ITR 52 (SC) would be applicable to the facts of the present controversy, for, in the present case, the Tribunal has not recorded any finding as to the essential facts which led to the taking of the loon. No doubt the circumstances in which the loans were taken appear in the argument of the assessee raised before the Tribunal, but the Tribunal has not recorded any finding as to whether the facts alleged by the assessee were correct or not.
8. In this view of the matter, we return the first question unanswered and answer the second question in the affirmative, in favour of the department and against the assessee. In the circumstances, there shall be no order as to costs.
Disclaimer: Above Judgment displayed here are taken straight from the court; Vakilsearch has no ownership interest in, reservation over, or other connection to them.
Title

Hari Shanker Gauri Shanker vs Commissioner Of Income-Tax

Court

High Court Of Judicature at Allahabad

JudgmentDate
27 April, 1976
Judges
  • C Singh
  • R Sahai