Law:

Section:

Section 37(1) of the Income-tax Act, 1961 [Corresponding to section 10(2)(xv) of Indian Income-tax Act, 1922] - Business expenditure - Allowability of - Assessee entered into an agreement with "C" Ltd. for exploitation of timber in certain undeveloped forest and paid Rs. 1.20 lakhs as consideration - He thereafter purchased property outright from "C" Ltd. - However, assessee did not do any exploitation of timber himself - He subsequently entered into another agreement with "I" Ltd. for exploitation of entire area at rates mutually agreed upon between them - Whether on facts, amount of Rs. 1.20 lakhs represented a capital and not a revenue expenditure - Held, yes FACTS The assessee was a 'individual' carrying on inter alia a timber business. In the course of business he entered into an agreement with "C" Ltd. for exploitation of certain undeveloped forest as also the regular plantation areas that belonged to it. Under the terms of this agreement, the assessee was to cut the timber and to make the area fit for plantation. The consideration for the agreement paid was Rs. 1,20,000. The assessee subsequently purchased the above property outright from "C" for a further consideration of Rs. 30,.000 paid in cash. However, the assessee did not do any exploitation of timber himself. He thereafter entered into an agreement with "I" Ltd. for exploitation of the entire are for a Kuttikanam payable to him at rates mutually agreed upon between them. On the basis of above fact, the real controversy in instant case was whether the sum of Rs. 1,20,000 represented a capital or revenue expenditure. On reference : HELD On facts of the case, it was to be held that the sum of Rs. 1.20 lakhs represented a capital and not a revenue expenditure. Note : Decision was in favour of revenue. CASES REFERRED TO Assam Bengal Cement Co. Ltd. v. CIT [1955] 27 ITR 34 , Atherton v. British Insulated & Helsby Cables Ltd. [1925] 10 Tax Cas 155, Benarsidas Jagnnath, In re [1947] 15 ITR 185 (Lah.), City of London Contract Corp. Ltd. v. Styles [1887] 2 Tax Cas. 239, CIT v. South India Pictures Ltd. [1956] 29 ITR 910 (SC), CIT v. Vazir Sultan & Sons [1959] 36 ITR 175 , CIR v. Granite City…

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