Law:

Section:

Section 37(1) of the Income-tax Act, 1961 [Corresponding to section 10(2)(xv) of the Indian Income-tax Act, 1922] - Business expenditure - Allowability of - Assessment year 1959-60 - Whether Transport business carried on by assessee before acquisition of new permits is business in running other transport buses for which permits had already been granted - Held, yes - Whether in respect of new permit there can be no business before a permit has been obtained and, therefore, expenditure in obtaining a new permit cannot be regarded as expenditure laid out for purpose of business of running buses covered by other permits - Held, yes - Whether such a permit is property and expenses incurred in acquisition of such property, which is basis for starting business of running bus to which permit relates, are, therefore, of a capital character - Held, yes FACTS The assessee-company was a fleet owner and carried on transport business. During the accounting year relevant to the assessment year 1959-60, the assessee paid certain amount by way of fee to a lawyer who appeared in proceedings under the Motor Vehicles Act to obtain the three new route permits. The ITO disallowed the assessee's claim of deduction as business expenditure, which was upheld, by the appellate authority and the Tribunal. On reference: HELD A reference to the provisions of the Motor Vehicles Act would make it clear that each route permit is a separate entity, which is granted after elaborate proceedings. Transport business, after all, consists of running of buses and no bus can be run except on permit. When a new permit is obtained, it cannot be said that the expenses incurred therefor are expenses laid out for the purpose of a business carried on by the assessee. The business carried on by the assessee before acquisition of the new permits is the business in running other transport buses for which permits had already been granted. In respect of the new permit there can be no business before a permit has been obtained. It is settled that such a permit is property and the expenses incurred in acquisition of such property, which is the basis for starting the business of running the bus to which the permit…

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