1986-VIL-390-DEL-DT

Equivalent Citation: [1986] 160 ITR 857, 51 CTR 228, 26 TAXMANN 281

DELHI HIGH COURT

Date: 03.01.1986

DELHI CLOTH AND GENERAL MILLS COMPANY LIMITED

Vs

ADDITIONAL COMMISSIONER OF INCOME-TAX

BENCH

Judge(s)  : S. RANGANATHAN., YOGESHWAR DAYAL 

JUDGMENT

The judgment of the court was delivered by

S. RANGANATHAN J.-This reference under the Income-tax Act, 1961, relates to the assessment year 1964-65. At the instance of the assessee, M/s. Delhi Cloth & General Mills Co. Ltd., four questions have been referred to us for opinion :

" 1. Whether, on the facts and in the circumstances of the case, the sum of Rs. 62,500 paid to the Indian National Congress is a permissible deduction under the Income-tax Act, 1961 ?

2. Whether the sale proceeds of trees at Barhani amounting to Rs. 22,605 were on the facts and circumstances of the case completely exempt from tax under section 10(3) of the Income-tax Act being receipts of casual and non-recurring nature ?

3. Whether, on the facts and in the circumstances of the case, the entire expenditure on electric fittings of Rs. 11,807 at the retail cloth depots of the assessee company is a permissible deduction under the Income-tax Act, 1961, and whether the Tribunal was justified in restricting the deduction to such expenses as related to old depots only ?

4. Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in holding that Rs. 7,730 spent on purchase of new furniture and racks for replacement in the existing retail depots of the assessee company was an expenditure of a capital nature ? "

So far as the first question is concerned, it is already concluded by decision of this court in Delhi Cloth & General Mills Co. Ltd. v. ClT [1980] 125 ITR 96. In view of this, the first question referred to us is answered in the negative and against the assessee. As the question is fully covered by the earlier decision, we do not consider it necessary to set out the facts in greater detail.

So far as the second question is concerned, the brief facts that are available on record are that the assessee was running a sugar factory at Barhani which was shifted from Barhani to Mawana in 1959. However, at the factory site at Barhani, several trees were growing and these were sold in the year of account relevant to the assessment year 1964-65 for Rs. 22,605. The Income-tax Officer treated this as the assessee's income liable to tax. On appeal, however, the Tribunal held that the assessee was not entitled to exemption in respect of the receipts as claimed but that the assessee was liable to pay tax on capital gains, if any, realised on the disposal of the trees. In other words, the assessee would be liable to tax on the difference between the sale price and the market value of the trees as on January 1, 1954, the difference being treated as capital gains liable to tax. The assessee is aggrieved by this order and the question referred to us is whether the entire receipt is exempt from tax under section 10(3) as being a receipt of a casual and non-recurring nature. After some arguments, learned counsel for the assessee stated that since, in view of the deduction for the market value on January 1, 1954, allowed by the Tribunal against the total receipts, the net amount liable to tax may not be significant, he will not press for an answer to this question. This question is, therefore, treated as not pressed and we do not return any answer to the same.

In regard to the third and fourth questions, the relevant facts are these : The assessee maintains a number of retail cloth depots for the sale of cloth manufactured by it. During the relevant assessment year, the assessee claimed Rs. 38,011 as expenditure incurred on furniture and racks and a sum of Rs. 11,807 as expenditure incurred in respect of electric fittings. Before the Tribunal, the assessee confined its claim under the first head only to a sum of Rs. 7,730 which represents expenditure for replacement of furniture in old depots. In regard to the expenditure on electric fittings, it covered both expenditure in respect of old depots and expenditure in respect of new depots. The Tribunal held that the expenditure in respect of replacement of furniture was not an allowable deduction even to the extent of Rs. 7,730 as claimed by the assessee and that the expenditure was capital in nature. So far as the expenditure on electric fittings was concerned, the Tribunal directed that the expenditure should be disallowed as capital expenditure only in so far as it related to electric fittings to new depots.

The assessee has sought a reference of these questions to us. We are, however, of the opinion that on the material on record, which is very meagre, the view taken by the Tribunal is the correct one. Normally, expenditure incurred on furniture and racks will be of capital nature and so also where new depots are established by the assessee, expenditure on electric fittings thereto will be capital in nature. Learned counsel for the assessee contended that so far as the expenditure on furniture and racks was concerned, it was revenue in nature inasmuch as, having regard to modern methods of business, it becomes necessary for the assessee to modify the appearance of the show rooms and effect changes in the outfit of the show rooms from time to time with a view to make it more attractive so as to secure larger business. The expenditure on electric fittings also, it is said, is of the same nature and should be allowed. As already mentioned, there are no facts to support the contentions of the learned counsel. On the bare facts on record, we are unable to differ from the conclusion of the Tribunal but we leave it open to the assessee, if so advised, to put forward in another year the contention that is now sought to be addressed after adducing necessary facts which may substantiate that contention. As it is, we see no reason to differ from the view taken by the Tribunal. We, therefore, answer the third question by saying that the Tribunal was justified in restricting the deduction of expenditure on electric fittings to such expenses as related to old depots only and the fourth question in the affirmative. The reference is disposed of as above. The Department will be entitled to its costs. Counsel's fee Rs. 750.

 

 

 

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