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PROJECT OF TAXATION LAW

ON THE CASE
“L.B. SUGAR FACTORY & OIL
MILLS VS C.I.T. U.P., LUCKNOW
ON 26 AUGUST, 1980”

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TABLE OF CONTENT
S.NO TOPIC PAGE NO.
1. FACTS OF THE CASE 3 &4
 NAME OF CASE
 NAME OF PARTIES
 WHAT HAPPENED FACTUALLY
 WHAT HAPPENED
PROCEDURALLY
 JUDGMENT
2. ISSUES( WHAT IS THE DISPUTE) 5

3. HOLDING( THE APPLIED RULE OF 5


LAW)
4. RATIONALE(REASONS FOR THE
HOLDING)

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FACTS OF THE CASE ( Name of the case and its parties, what happened
factually and procedurally, and the judgment):

NAME OF THE CASEAND ITS PARTIES

L.B. SUGAR FACTORY & OIL MILLS (P) LTD. PILIBHIT (PETITIONER)

VS.

C.I.T. U.P, LUCKHNOW (RESPONDENT)

WHAT HAPPENED FACTUALLY-


1. The appellant was carrying on business of manufacturing and sale of sugar in sugar
factory which was situated in Pilibhit in the state of Uttar Pradesh.
2. In the year 1952-53, the assesse contributes the sum of Rs.22,332 during the accounting
year ending 30 Sep, 1955 on the request of the collector for the construction of the Deoni
Dam and the Deoni Dam Majhala Road.
3. In the same accounting year, the assesse also contributed a sum of Rs 50000 to the state
of U.P for the construction of roads which is area covered around its factory under a
sugarcane Development Scheme promoted by the Uttar Pradesh government as part of
the Second five year plan.
4. When the time came for Assessment to Income tax in the Assessment Year 1956-57, the
assesse claimed his both the amounts of Rs. 22,332 and Rs. 50,000 to deduct them as
deductible expenditure under sec 10(2) (xv) of the Indian Income tax act, 1922 but the
income tax officer disallowed the claim for deduction on the basis that the expenditure
accrued was of capital nature and was not allowable as a deduction under section 10(2)
(xv).
5. The assesse filed an appeal to the Appellate Assistant Commissioner but that appeal
failed and further the assesse filed an appeal before the tribunal. His appeal was heard by
two members of the tribunal and they both have the different opinion.
6. The assesse sought a reference to the high Court.

WHAT HAPPENED PROCEDURALLY-

1. When the assesse filed an appeal before the tribunal than his appeal was heard by two
members and both of them have different opinion as follows-
Judicial Member-His opinion was that both the expenditure is of revenue expenditure
and therefore should be allowed for deduction.
Accountant Member- His opinion was that both the expenditure is of capital account
and therefore could not be allowed as revenue expenditure.
III member- This was the opinion which makes a matter of difference.

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 He did not go into the question whether the expenditure incurred by the
assesse was in the nature of capital or revenue expenditure but look as a
totally different line and held that the contributions were made by the assesse
as a good citizen just as any other person.
 He agreed with the accountant member and held that both the amounts of Rs.
22,332 and Rs 50000 were not allowable as deductible expenditure under sec
10(2)(xv).
2. The assesse thereupon sought a reference to the High Court and on the application of the
assesse, the following question of law was referred for the opinion of the High Court:
“Whether on the facts and circumstances of the case the sums of Rs. 22,332 and Rs,
50,000 were admissible deductions in computing the taxable profits and gains of the
company’s business.” The High Court accordingly answered the question referred to
infavour of the revenue and against the assesse. The High Court observed that the
expenditure incurred by the assesse could not be classified as revenue expenditure. The
view that the High Court had taken was that since “the expenditure was not related to the
business activity of the assesse as such, the tribunal was justified in concluding that it was
not wholly and exclusively laid out for business and the deduction claimed by the assesse
therefrom did not come within the ambit of section 10(2)(xv).”
3. It was clear that the expenditure incurred by an assesse can qualify for deduction under
section 10(2)(xv) only if it is incurred wholly and exclusively for the purpose of his
business, but even if it fulfills this requirement, it is not enough it must further be of
revenue as distinct from capital nature.
4. Two questions therefore arise for consideration in the present appeal:-
Question 1- Whether the sums of Rs 22,332 and Rs. 50,000 contributed by the assesse
represented expenditure incurred wholly and exclusively for the purposes of the business
of the assesse.
Question 2- Whether this expenditure was in the nature of capital or revenue expenditure.

JUDGMENT:-
The Judgment of this case is the decision of the case Lakshmi Sugar Mills case and hold
on the analogy of that decision that the amount of Rs 50,000 contributed by the assesse
represented expenditure on the revenue account. The appeal was accordingly dismissed as the
expenditure of the sum of Rs. 22,332 is concerned. But, so far as the expenditure of the sum of
Rs. 50,000 is concerned, and the expenditure was of nature of revenue expenditure laid out
wholly and exclusively for the purpose of the assesse’s business and was therefore, allowable as
a deduction under section 10(2)(xv) of the act and allow the appeal to this limited extent. Since
the assessee has partly won and partly lost, so the fair order of cost would be that each party
should bear and pays its own costs throughout.

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ISSUES( What is the dispute):-
The issue in this appeal by certificates relates to two items
of expenditure incurred by the assesse during the assessment year 1956-57, for which the
relevant accounting year was the year ending on 30th September, 1955. The assesse claimed to
deduct these two amounts of Rs. 22,332 and 50,000 as deductible expenditure under section
10(2)(xv) of the Indian income tax Act, 1922.

HOLDING (The applied rule of law):-


If the advantage consists merely in facilitating the
assessee’s business operation or enabling the management and conduct of the assessee’s business
to be carried on more profitably while leaving the fixed capital untouched, the expenditure would
be on revenue account, even though the advantage may endure for an indefinite future.