Indian Kanoon - Search engine for Indian Law

13. Applying the tests to the case before it, the Patna High Court held that the money expended on stowing operations was by way of revenue disbursement. The decision of the Patna High Court was the subject of an appeal to the Supreme Court in CIT v. Kirkend Coal Co. [1970] 77 ITR 531 and it was upheld. The Supreme Court quoted with approval a passage from the case of Bombay Steam Navigation Co. (1953) P. Ltd. [1965] 56 ITR 52(SC) which we have set out above.

14. In Brooke Bond India Ltd. v. CIT , the assessee had issued shares and incurred expenditure which had been claimed as a revenue deduction. The Tribunal had found that the assessee had itself stated that, by the expenditure, the capital base of the assessee was reinforced on a permanent basis and that this was the main purpose of the assessee. It was submitted before the Calcutta High Court that the object and purpose of the expenditure was to strengthen the capital structure and, only as an incidental result, more funds had flowed to the assessee making more working funds available to it. The High Court held that that could not change the essential object and purpose of incurring the expenditure and the resultant fact, that is to say, the fundamental change in the income-earning machinery and structure. It held that, therefore, the Tribunal had been right in disallowing the expenditure. In its exhaustive judgment, the High Court said that if the main object, purpose and nature of the transaction was to affect the income-earning machinery or structure as such and not only to make the inflow of more funds available, then the expenditure would be on the capital side. It was true that the alteration in the capital structure by raising the share capital would make more funds available, then the expenditure would be on the capital side. It was true that the alteration in the capital structure by raising the share capital would make more funds available, but that was not decisive. The essential object and purpose for incurring the expenditure and the resultant fact was the fundamental change in the income-earning machinery or structure. It was the resultant advantage obtained by incurring the expenditure, along with the purpose and object of incurring the expenditure, which was the guide to answering the question.