MANCHANDA J. - This is a statement of the case under section 66(1) of the Income-tax Act, 1922 (hereinafter referred to as the Act). The question referred is :
'Whether the expenditure of Rs. 3,750 incurred by the assessee is an allowable item of deduction under section 10(2)(xv) of the Income-tax Ac ?'
The material facts are these : The relevant year of assessment is 1958-59, the previous year being the year ending on the 2nd October, 1957. The assessee is a company which manufactures sugar. In returning a net loss of Rs. 3,61,915 for the relevant assessment year, it deducted an expenditure for stamps and registration charges for entering into an agreement with the Punjab National Bank for obtaining an overdraft. The Income-tax Officer would appear to have accepted that this was in fact an expenditure incurred for stamps, registration charges, etc., in respect of an overdraf agreement with the bank, but he disallowed it on the ground that it was not an expense on the renewal of an agreement but for entering into a new agreement, and, as such, it was capital expenditure in nature. The Appellate Assistant Commissioner agreed with this view and added that the expenditure did not bring into existence a new asset of an enduring nature. On second appeal to the Tribunal, the agreement with the band was not forthcoming and so it proceeded to decide the case on the basis of the facts found by the authorities below and endorsed the view that the expenditure was capital in nature. Hence, this reference by the assessee.
The admitted fact would appear to be that the expenditure was incurred for obtaining an overdraft from the bank for the purpose of carrying on the business of the assessee. The question is whether the loan brought into existence an asset of an enduring nature. If it did bring into existence as asset of an enduring nature, it would satisfy the test laid down by Viscount Cave L. C. in Atherton v. British Insulated and Helsby Cables Ltd. This test has been accepted and applied by our Supreme Court. When a loan is taken, the very idea of loan is that it is for the purpose of meeting a contingency. A loan may be taken for acquiring capital goods or for acquisition of the stock-in-trade or to meet the day-to-day running of a business. The very word 'loan' implies a liability, and it is, therefore, difficult if not impossible to conceive of a loan as something which brings into existence an asset of an enduring nature. In the statement of the case it is conceded that the expenditure was for the purpose of obtaining an overdraft from the bank. Overdraft facilities are generally for a limited period renewable from time to time, and as such no quality of permanence or of an enduring nature can possibly be ascribed to it. In any event, there is no material on the record for the finding given by the departmental authorities that the expenditure brought into existence an enduring asset. The departmental authorities have proceeded on the basis that if the expenditure had been for renewal of the agreement it would have been allowable as revenue expenditure but not if it is for an agreement entered into for the first time. There is no warrant for drawing any such distinction between initial expenditure for entering into such an agreement and an expenditure for its renewal. The test as laid down by the Supreme Court in India Cements Ltd. v. Commissioner of Income-tax is that 'where there is no express prohibition, an outgoing, by means of which an assessee procures the use of a thing by which it makes a profit, is deductible from the receipts of the business to ascertain taxable income'. On the facts of that case, their Lordships held, 'that the money secured by the loan was a thing for the use of which this expenditure was made. In principle, apart from any statutory provisions, we see no distinction between interest in respect of a loan and an expenditure incurred for obtaining the loan'. It is no doubt true that in that case a specific loan of forty lakhs of rupees was obtained from the Industrial Finance Corporation, which was secured by a charge on the fixed assets of the company, but that will not make the ratio of that case inapplicable to the facts of the present case where expenditure was for obtaining overdraft facilities from the bank. The Supreme Court also pointed out that it is wholly irrelevant to consider the object with which the loan was obtained. On the facts and circumstances of the present case, we would hold that the impugned expenditure was such that it enabled the assessee to procure the use of money from the bank in the shape of an overdraft for the purpose of its business and as such it was an expenditure wholly laid out for the purpose of its business.
For the reasons given above, we would answer the question referred in the affirmative, and in favour of the assessee. The Commissioner of Income-tax will pay the costs of this reference, which we assess at Rs. 200. Counsels fee is also assessed at Rs. 200.