| Case ID |
4535d6a7-568f-4196-b6ce-ba6f25520715 |
| Body |
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| Case Number |
IT REFERENCE No. 231 OF 1973 |
| Decision Date |
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| Hearing Date |
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| Decision |
The court held that the amount of Rs. 1,50,000 forfeited by the Government could not be included in the actual cost of the machinery for depreciation purposes. The obligations under the bond were considered normal business obligations, and any loss incurred from the forfeiture was a business loss rather than a capital loss. The Tribunal's conclusion that the forfeited amount should be added to the cost of the machinery was erroneous. The court adhered to the principles laid down in previous cases, emphasizing that expenses incurred after the acquisition of an asset do not alter its actual cost. |
| Summary |
This case revolves around the interpretation of section 32(1) of the Income-tax Act, 1961, specifically regarding the treatment of a forfeited bond amount as a capital loss or business loss. The petitioner, the Commissioner of Income Tax, contested the Tribunal's decision that allowed for depreciation on the machinery's cost, inclusive of the forfeited bond amount of Rs. 1,50,000. The assessee had executed a bond to import machinery, linked to an obligation to export garments, which it failed to fulfill, leading to the forfeiture. The court ultimately ruled that the forfeiture did not constitute a capital expense but rather reflected normal business operations, reaffirming established legal principles regarding asset valuation and depreciation. The ruling emphasizes the distinct nature of capital expenditures versus operational losses in business accounting, contributing to ongoing discussions in tax law and financial reporting. |
| Court |
Bombay High Court
|
| Entities Involved |
Not available
|
| Judges |
Kama, J.
|
| Lawyers |
R.J. Joshi,
H.K. Sanjani,
S.S. Shelly,
D. Vyas,
R.M. Kadam
|
| Petitioners |
Commissioner of Income Tax
|
| Respondents |
Inter Link Traders (P.) Ltd.
|
| Citations |
1983 SLD 1082,
(1983) 144 ITR 173
|
| Other Citations |
Challapalli Sugars Ltd. v. CIT [1975] 98 ITR 167 (SC),
CIT v. Chemicals & Fibres of India Ltd. [1983] 142 ITR 413(Bom.),
CIT v. Damodaran [1980] 121 ITR 572 (SC),
CIT v. Great Eastern Shipping Co. Ltd. [1979] 118 ITR 772(Bom.)
|
| Laws Involved |
Income-tax Act, 1961
|
| Sections |
32(1)
|