Dalmia Dadri Cement Ltd. v. Commissioner Of Income-Tax.

1. At the instance of the assessee, the following two questions of law have been referred for our opinion:

“1. Whether, on the facts and in the circumstances of the case, the assessee's profits and gains earned in the calendar year 1957 were assessable to tax for the assessment year 1958-59 at the rates prescribed by the Finance Act, 1958, or in accordance with clause 23 of the agreement dated April 1, 1938, entered into between the assessee and the erstwhile Jind State?

2. Whether, on the facts and in the circumstances of the case, the Tribunal was right in not deducting a sum of Rs. 8,881 representing commission paid on borrowing shares for purpose of pledging them as security with the income-tax department for securing stay of recovery of certain taxes, in the computation of profits and gains of business of the assessee-company?”

2. So far as the answer to the first question is concerned, it has to be in the same terms as our answer in Income-tax Reference No. 20 of 19701, decided today, that is, the answer has to be in favour of the department and against the assessee.

3. So far as the second question is concerned, the contention of the learned counsel for the assessee is based on two decisions of the Supreme Court in India Cements Ltd. v. Commisssioner of Income-tax [1966] 60 I.T.R 52 and Jeewanlal (1929) Ltd. v. Commissioner of Income-tax [1969] 74 I.T.R 753 S.C.. Before we deal with these decisions, it will be proper to mention the brief facts and the contention advanced.

4. For the year 1958-59, the income-tax authorities refused to allow a deduction of Rs. 4,981 and Rs. 3,950 paid as commission to Bhriguraj Charity Trust and M/s. Dalmia Jain Charity Trust, respectively. The contention of the assessee is that this commission was paid in furtherance of the business of the assessee. The commission was paid as the shares of these trusts were borrowed by the assessee and were pledged with the Commissioner of Income-tax in order to secure stay of recovery of income-tax pending the disposal of appeals by the Commissioner against the order of the Income-tax Officer. The claim before the department by the assessee was that these amounts of commission had been wholly and exclusively expended for the purpose of business carried on by the assessee. This contention failed with the authorities below and also the Tribunal, and that is how the second question was referred for our opinion.

5. The Tribunal proceeded to decide against the assessee on the basis of the decision of the Patna High Court reported as Maharajadhiraj Sir Kameshwar Singh v. Commissioner of Income-tax [1961] 42 I.T.R 774 Pat... We may also add that the decision of the Calcutta High Court in Mannalal Ratanlal v. Commissioner of Income-tax [1965] 58 I.T.R 84 Cal. takes the same view.

6. Reverting to the two Supreme Court decisions, particular emphasis is laid in India Cements' case on the passage in the judgment of Subba Rao J. (as he then was) in Commissioner of Income-tax v. Malayalam Plantations Ltd. The passage read thus:

“‘The expression “for the purpose of the business” is wider in scope than the expression “for the purpose of earning profits”. Its range is wide; it may take in not only the day-to-day running of a business but also the rationalisation of its administration and modernization of its machinery; it may include measures for the preservation of the business and for the protection of its assets and property from expropriation, coercive process or assertion of hostile title; it may also comprehend payment of statutory dues and taxes imposed as a precondition to commence or for carrying on of a business; it may comprehend many other acts incidental to the carrying on of a business.’”

7. That was a case where a loan had been incurred by the assessee to carry on its business from the financial corporation. The loan was held to have been incurred incidentally for carrying on the business. So far as the present case is concerned, none of the requirements of the passage, referred to above, are satisfied. There is no evidence that the business of the assessee was threatened with stoppage or was otherwise to suffer if the stay had not been obtained. Prima facie, stay of recovery of tax has nothing to do with the carrying on of the business of the assessee nor has it anything to do with its purpose. Therefore, the ratio of the decision of the Supreme Court in Commissioner of Income-tax v. Malayalam Plantations Ltd. which was approved in India Cement's case cannot help the contention of the learned counsel for the assessee.

8. So far as Jeewanlal (1929) Ltd. v. Commissioner of Income-tax is concerned, it merely followed the decision in India Cements case. In that case, the appellant-company started negotiations with a bank for securing overdraft facilities for the purpose of its business. It was in that connection that it incurred an expenditure of Rs. 35,800. This amount was claimed by the appellant-company as permissible deduction and this was so held by the Supreme Court. This decision again has no parallel with the case with which we are dealing and the same reasoning applies to it as we have used while dealing with the case of India Cements Ltd..

9. For the reasons recorded above, the second question referred to us must also be answered against the assessee and in favour of the department, that is, in the affirmative. There will be no order as to costs.