Law:

Section:

Section 37(1) of the Income-tax Act 1961 - Business expenditure - Allowability of - Assessment years 1964-65 to 1969-70 - Assessee company, engaged in business of import and sale of commodities, - It had advanced certain amount to its sister concern 'G' - Loan was secured by first mortgage of ship belonging to 'G' - Outstanding loan alongwith interest was appearing in books of assessee - Director of assessee decided to purchase said ship - After sale was effected 'G' went into liquidation - Assessee adjusted value of ship against outstanding loan and written off balance amount - Whether ship acquired by assessee was part of its stock-in-trade - Held, yes - Whether, therefore, expenditure incurred by assessee on maintenance of said ship was allowable business expenditure -Held, yes FACTS The assessee-company was a trading concern engaged in the business of import and sale of commodities. It had advanced certain amount to a sister concern 'G'. No interest was charged on that loan for that year. For the next year interest was charged and was brought to tax as income under the head 'Business'. The amount of advance was secured by first mortgage of the ship belonging to 'G'. The amount of outstanding loan as well as interest thereon was appearing in books of the assessee. The directors of the assessee decided to purchase said ship. The offer was accepted by 'G'. After the sale was effected the said 'G' went into liquidation. The assessee adjusted the value of ship against the outstanding loan and wrote off the balance. The writing off of that bad debt was allowed by the ITO in that year. The assessee did not carry on the business of plying the said ship. It, however, remained in possession of the ship and was obliged to incur expenditure towards its maintenance. During the accounting periods relevant to the assessment years in question, certain expenditure was incurred towards the maintenance of the ship. The assessee claimed deduction of those expenses out of its income from the business. The ITO rejected that claim on the ground that the ownership of the vessel was not transferred to the assessee and the assessee did not carry on any shipping business. The AAC…

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