Kerala High Court on section 37(1) of the Income-tax Act

Last updated: 17 October 2008

Court :
High Court

Brief :

Citation :
Cochin Malabar Estates & Industries Ltd. v. Commissioner of Income-tax, Cochin [ITR No. 5 of 2000]

Section 37(1) of the Income-tax Act, 1961 – Business expenditure – Allowability of assessee, a company engaged in plantation and construction activity, deposited an amount of Rs.10 lakhs with Calcutta based company for appointing assessee as a distributor of other company – Amount so deposited was interest bearing deposit – However, company at Calcutta with which deposit was made by assessee never started production leading to their failure to pay interest and refund amount advanced by assessee – After around 10 years, asssessee agreed to abandon Rs.3 lakhs on condition of payment of Rs.7 lakhs by other company – Accordingly, Rs.3 lakhs was claimed as deduction of business expenditure which was disallowed by authorities below – Whether expenditure incurred was for acquiring capital asset, i.e., an advantage of enduring nature in form of distribution rights – Held, yes – Whether, therefore, when part of such capital asset was written off to retrieve balance, obviously written off part represented capital outlay and, therefore, assessee was not entitled to deduction of same under section 37(1) – Held, yes