Law:

Section:

Section 10(2)(xv) of the Indian Income-tax Act, 1922 [Corrseponding to section 37(1) of the Income-tax Act, 1961] - Business expenditure - Assessee-company, manufacturing jute, became member of registered association whose objects, inter alia, were to adjust production, amongst member mills, inter se, to demand of world market to avoid competition - Under an agreement, working hours allotted to each mill, if surplus, were transferable to another mill for latters' utilisation on payment of specified consideration for such purchase of loom hours - Assessee purchased such loom hours on payment of Rs. 2,03,255 during assessment year 1960-61 and claimed deduction as revenue expenditure - ITO disallowed the same as being capital expenditure - AAC and tribunal accepted assessee's claim - High court ultimately upheld ITO's disallowance - Whether impugned payment of Rs. 2,03,255 for purchase of loom hours represented revenue expenditure and an allowable deduction under section 10(2)(xv) - Held, on facts, yes FACTS The assessee is a limited company carrying on business of manufacture of jute. It is a member of the Indian Jute Mills Association having a factory with a certain number of looms. It is a member of the Indian Jute Mills Association consisting of various jute manufacturing mills as its members. Its object, inter alia, is to adjust the production of the mills amongst its members to the demand in the world market. With a view to achieve this object, a working time agreement was entered into between its members restricting the number of working hours per week for which the mills were entitled to work their registered complement looms, which could be increased in the event of any reduction in the loomage. The number of working hours per week thus prescribed was subject to certain other stipulations. Members could get themselves registered as a "group of mills", if they happened to be under the control of the same managing agents or were combined by any arrangement or agreement. The groups so formed could utilise the allotted hours of other members in the same group, who were not fully utilising their hours subject to certain restrictive conditions. This transaction…

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