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ON THE CASE
L.B. SUGAR FACTORY & OIL
MILLS VS C.I.T. U.P., LUCKNOW
ON 26 AUGUST, 1980
SUBMITTED TO SUBMITTED BY
PROF. AVIJIT FAUJDAR ZAIBA REHMAN
LLB (SEM III)
GU16R0272
1
TABLE OF CONTENT
S.NO TOPIC PAGE NO.
1. FACTS OF THE CASE 3 &4
NAME OF CASE
NAME OF PARTIES
WHAT HAPPENED FACTUALLY
WHAT HAPPENED
PROCEDURALLY
JUDGMENT
2. ISSUES( WHAT IS THE DISPUTE) 5
2
FACTS OF THE CASE ( Name of the case and its parties, what happened
factually and procedurally, and the judgment):
L.B. SUGAR FACTORY & OIL MILLS (P) LTD. PILIBHIT (PETITIONER)
VS.
1. When the assesse filed an appeal before the tribunal than his appeal was heard by two
members and both of them have different opinion as follows-
Judicial Member-His opinion was that both the expenditure is of revenue expenditure
and therefore should be allowed for deduction.
Accountant Member- His opinion was that both the expenditure is of capital account
and therefore could not be allowed as revenue expenditure.
III member- This was the opinion which makes a matter of difference.
3
He did not go into the question whether the expenditure incurred by the
assesse was in the nature of capital or revenue expenditure but look as a
totally different line and held that the contributions were made by the assesse
as a good citizen just as any other person.
He agreed with the accountant member and held that both the amounts of Rs.
22,332 and Rs 50000 were not allowable as deductible expenditure under sec
10(2)(xv).
2. The assesse thereupon sought a reference to the High Court and on the application of the
assesse, the following question of law was referred for the opinion of the High Court:
Whether on the facts and circumstances of the case the sums of Rs. 22,332 and Rs,
50,000 were admissible deductions in computing the taxable profits and gains of the
companys business. The High Court accordingly answered the question referred to
infavour of the revenue and against the assesse. The High Court observed that the
expenditure incurred by the assesse could not be classified as revenue expenditure. The
view that the High Court had taken was that since the expenditure was not related to the
business activity of the assesse as such, the tribunal was justified in concluding that it was
not wholly and exclusively laid out for business and the deduction claimed by the assesse
therefrom did not come within the ambit of section 10(2)(xv).
3. It was clear that the expenditure incurred by an assesse can qualify for deduction under
section 10(2)(xv) only if it is incurred wholly and exclusively for the purpose of his
business, but even if it fulfills this requirement, it is not enough it must further be of
revenue as distinct from capital nature.
4. Two questions therefore arise for consideration in the present appeal:-
Question 1- Whether the sums of Rs 22,332 and Rs. 50,000 contributed by the assesse
represented expenditure incurred wholly and exclusively for the purposes of the business
of the assesse.
Question 2- Whether this expenditure was in the nature of capital or revenue expenditure.
JUDGMENT:-
The Judgment of this case is the decision of the case Lakshmi Sugar Mills case and hold
on the analogy of that decision that the amount of Rs 50,000 contributed by the assesse
represented expenditure on the revenue account. The appeal was accordingly dismissed as the
expenditure of the sum of Rs. 22,332 is concerned. But, so far as the expenditure of the sum of
Rs. 50,000 is concerned, and the expenditure was of nature of revenue expenditure laid out
wholly and exclusively for the purpose of the assesses business and was therefore, allowable as
a deduction under section 10(2)(xv) of the act and allow the appeal to this limited extent. Since
the assessee has partly won and partly lost, so the fair order of cost would be that each party
should bear and pays its own costs throughout.
4
ISSUES( What is the dispute):-
The issue in this appeal by certificates relates to two items
of expenditure incurred by the assesse during the assessment year 1956-57, for which the
relevant accounting year was the year ending on 30th September, 1955. The assesse claimed to
deduct these two amounts of Rs. 22,332 and 50,000 as deductible expenditure under section
10(2)(xv) of the Indian income tax Act, 1922.