Gujarat High Court
Commissioner Of Income-Tax vs Pure Beverages Ltd. on 21 September, 1993
Equivalent citations: [1994]209ITR131(GUJ)
Author: M.B. Shah
Bench: J.M. Panchal, M.B. Shah
JUDGMENT M.B. Shah, J.
1. The Income-tax Appellate Tribunal has referred the following question under section 256(1) of the Income-tax Act, 1961 ("the Act", for short), for our opinion :
"1. Whether, on the facts and in the circumstances of the case, the Appellate Tribunal has been right in law in holding that the claim of reimbursement of amount of advances as an allowable deduction ?
2. Whether, on the facts and in the circumstances of the case, the Appellate Tribunal has been right in law in directing the Income-tax Officer to allow that part of the expenditure which was incurred by the assessee in the calendar year 1974 for the assessment year 1975-76 ?"
2. The aforesaid questions arise in the background of the facts that in the assessment year 1975-76, the assessee-company claimed deduction of Rs. 65,000 for the electric cooler advances. It is the contention of the assessee that it had made arrangement with the United Commercial Bank to give advance to its dealers for purchase of electric coolers. This type of arrangement was required to be done in the year 1969. Prior to 1969, it is the case of the assessee-company that it used to purchase and supply electric coolers to the retailers for keeping the beverages (fanta and coca cola). That practice was discontinued and the assessee-company had persuaded the dealers to purchase coolers for chilling the drinks. The dealers expressed their difficulties in investing Rs. 3,000 to Rs. 6,000 each and desire that the assessee should devise some arrangement by which the purpose could be served. The assessee, in turn, worked out the arrangement with the bank as stated above. The assessee-company had agreed to reimburse the bank for any loss which may arise on account of non-recovery of such advances. The advances were given in the year 1969-70. The bank could not recover about Rs. 72,000. Thereafter, the assessee succeeded in recovering about Rs. 7,000 and had reimbursed the bank an amount of Rs. 65,000 which was claimed as deduction. The Income-tax Officer rejected the claim of the assessee.
3. In appeal, the Commissioner of Income-tax (Appeals) arrived at the conclusion that the soft drinks sold by the assessee-company would not taste good unless they were chilled and it was in the interest of the assessee-company to see that the retailers had coolers. The liability to the bank was, therefore, in the course of the assessee's business and, hence, that deduction was allowed.
4. Before the Tribunal, it was contended on behalf of the Department that it was not the assessee's business to deal in such electric coolers and it was the responsibility of the retailers to have coolers and, therefore, it cannot be said that the loss was in the course of the assessee's business. Alternatively, it was contended that the expenditure was of a capital nature. Both these contentions were rejected by the Tribunal. It observed that the said expenditure was otherwise allowable and that the only question required to be considered by the Income-tax Officer is whether the said expenditure is incurred for this purpose in the particular accounting year.
5. From the aforesaid facts, we are of the view that, though it was not the business of the assessee-company to deal in electric coolers, in order to procure more business, it was necessary in its business interest to make arrangement for its dealers to have electric coolers by giving a guarantee to the bank that if the dealers failed to pay the amount, it would reimburse and make good the loss, and such reimbursement would be in the nature of business expenditure. By no standard, can it be said to be capital expenditure as there was no intention on the part of the assessee to acquire any asset of enduring nature. The amount was required to be paid in the course of the business, which can be described as revenue expenditure. Further, it is to be noted that the Department has not challenged the finding given by the Commissioner of Income-tax (Appeals) that it is common knowledge that the soft drinks do not taste good unless they are chilled and it was in the interest of the assessee to ensure that the dealers satisfied these requirements. It was further observed by the Commissioner of Income-tax that, if the retailers were not in a position to make the entire investment, the choice open to the assessee was either to curtail its business or stand guarantee for the loans that would be advanced by the bank and the latter course was more profitable and commercially expedient. In view of the aforesaid finding by the Commissioner of Income-tax (Appeals) that the liability to the bank was incurred in the course of carrying on the business of the assessee, it can be held without hesitation that it is a revenue expenditure and not a capital expenditure.
6. Hence, question No. 1 requires to be answered in the affirmative.
7. Regarding question No. 2, it depends only on investigation of facts. Therefore, in our view, the Tribunal rightly sent back the matter to the Income-tax Officer to determine that part of the expenditure which was incurred by the assessee in the accounting year under consideration and allow it for that year. Hence, question No. 2 also requires to be answered in the affirmative.
8. In the result, question Nos. 1 and 2 are answered in the affirmative, in favour of the assessee and against the Revenue. Reference stands disposed of accordingly with no order as to costs.