Law: Income Tax Act, 1922

Section: 66(1)

JUDGMENT Masud, J. -In this reference under section 66(1) of the Income-tax Act, 1922, the short point to be decided is whether the expenditure incurred for securing loan under overdraft account is to be treated as revenue or capital expenditure. The assessee had incurred an expenditure of Rs. 35,800 for securing financial overdraft from a bank. The said amount comprised the following heads of expenditure: Rs. 12,500 paid to Manilal Kothari as brokerage or commission for successfully negotiating with the bank for overdraft. Rs. 11,500 paid to M/s. Mackenzie Lyall & Co. and M/s. P.P. Shah as costs of valuation of the assets of the assessee to be hypothecated with the bank for overdraft. Rs. 11,800 cost of stamp purchased for deed of hypothecation. Rs. 35,800 The relevant year of assessment is the year 1952-53 and the corresponding previous year ended on December 31, 1951. The Income-tax Officer refused to allow the said expenditure of Rs. 35,800 on the ground that it was capital in nature and, on appeal, the Appellate Assistant Commissioner confirmed the order of the Income-tax Officer. On second appeal the Appellate Tribunal held that the financial overdraft negotiated with the bank was definitely an advantage of an enduring character and, as such, it was capital in nature. The Tribunal, therefore, concluded that the said sum of Rs. 35,800 was incurred by the assessee to secure a capital asset and must, therefore, be regarded as the capital expenditure incurred once and for all. Thus the assessee's claim for deduction or allowance under section 10(2)(xv) was rejected. On the facts and circumstances set out above the following question of law has been referred to this hon'ble court for opinion: "Whether, on the facts and circumstances of the case, the Tribunal was justified in holding that the sum of Rs. 35,800 incurred by the assessee for the purpose of raising or securing overdraft facilities from the bank was an expenditure of a capital nature not allowable under section 10(2)(xv)?" Mr. S.R. Banerjee, learned counsel for the assessee, has submitted before us that the said expenditure of Rs. 35,800 has not been incurred for acquiring any asset or advantage…

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