Commissioner of Income Tax vs Malayalam Plantations (India) Ltd.

K.S. Paripoornan, J.—At the instance of the Revenue, the Income Tax Appellate Tribunal has referred the following question of law for the . decision of this court :

" Whether, on the facts and in the circumstances of the case, the ''dilution expenses'' are an admissible deduction ?"

The respondent/assessee is a sterling company having business in tea and rubber plantations. It had to comply with the provisions of the Foreign Exchange Regulation Act in order to continue its business interests in India. They decided on floating a new company. A new company was incorporated. This resulted in the transfer of assets to the new company and the respondent/assessee was required to value the assets, including the tea and rubber plantations. This involved an expenditure of Rs. 50,000. It was claimed as a revenue expenditure. The Income Tax Officer declined to grant the deduction as, in his view, the expenditure was incurred in connection with the closure of the assessee''s business and so could not be a revenue expenditure. It was affirmed in appeal by the Commissioner of Income Tax (Appeals). In second appeal, the Income Tax Appellate Tribunal, following its earlier decision rendered in the case of Commonwealth Trust Ltd., Calicut, held that the expenditure would be revenue in nature. It is thereafter at the instance of the Revenue that the question of law, formulated hereinabove, has been referred for the decision of this court.

We heard counsel. The decision relied on by the Appellate Tribunal to hold in favour of the assessee came up before this court in Commissioner of Income Tax Vs. Commonwealth Trust Ltd., . Two questions arose for consideration in the said case. Question No. 2 was to the effect, whether the expenditure of Rs. 50,000 incurred by the assessee in that case towards valuation of its properties is one wholly and exclusively for the purposes of its business and hence an allowable deduction u/s 37 of the Income Tax Act. The matter was considered by this court at page 497 of the report. It was held that the amount having been expended on considerations of commercial expediency and sound business principles should be held to be expenses incurred wholly and exclusively for the purpose of the business. Since the very decision relied on by the Appellate Tribunal has been upheld in the Bench decision of this court in Commissioner of Income Tax Vs. Commonwealth Trust Ltd., at page 497, we are of the view that the decision of the Appellate Tribunal is justified in law.

We answer the question referred to this court in the affirmative --against the Revenue and in favour of the assessee.

A copy of this judgment, under the seal of this court and the signature of the Registrar, shall be forwarded to the Income Tax Appellate Tribunal, Cochin Bench.