JUDGMENT Kapur, J.
(1) By a consolidated statement of case made at the instance of btoh the assessed and the Commissioner of Income-tax, the Income-tax Appellate Tribunal, (Delhi Bench "A") has referred the following five questions to the Court :-
"(I) Whether on the facts and circumstances of the case, wealth-tax of Rs. 85,835.40 (as finally determined under Wealth-tax Act) paid for 57-58 Wealth-tax assessment under the Wealth-tax Act, 1957, is allowable against profits and gains of the company's business under section 10(1) or 10(2) (xv) of the Indian Income-tax Act, 1922" ?
(II) Whether on the facts and circumstances of the case the sum of Rs. 1,00,000.00 being contribution to the Congress party is an allowable deduction under section 10(1) or 10(2) (xv) of the Income Tax-Act, 1922?
(III) Whether the levy of excess dividend tax by withdrawal of Corporation tax rebate can be made and collected under the Income-tax Act, 1922 ?
(IV) Whether on the facts and circumstances of the case the legal charges of Rs. 1,10,138.00 incurred for obtaining loan from Industrial Finance Corporation are allowable in the computation of profits and gains of the business of the assessed ?
(V) Whether on the facts and in the circumstances of the case the development rebate was allowable to the assessed-company on the sanitary and drainage fittings of Rs. 46,877.00 ?"
(2) The first four questions were referred at the instance of the assessed and the fifth question at the instance of the Commissioner of Income-Tax. The period of assessment is the assessment year 1957-58.
(3) The first question stands concluded against the assessed by the decision of their Lordships of the Supreme Court in Travencore Titanium Product Ltd. v. Commissioner of Income Tax.(1) In that case the Supreme Court held that the amount of tax paid on the net wealth of the assessed under the Wealth-tax Act nto a permissible deduction under section 10(2) (xv) of the Indian Income Tax Act, in his assessment to income tax, for tax imposed under the Wealth Tax Act on the owner of the assets and nto on any commercial activity. In this view the question must be answered in the negative and against the assessed.
(4) Regarding the second question, the Income-tax Officer and the Appellate Assistant Commissioner declined to allow deduction of Rs. one lakh paid to the Congress Party on the ground that the same was mtoivated by political consideration and had no connection with the business of the assessed. The assessed went up in appeal before the Income-tax Appellate Tribunal and the Tribunal upheld the view of the Appellate Assistant Commissioner. Before the tribunal the assessed claimed on the basis of its letter, dated 1.6.1961, that the amount was paid for furtherance of the business. In the said letter it is, inter alia, stated:- "DUEto commercial expediency, the company has spent the same with a view to ensure smotoh and efficient running of the factory. The factory is situated at a place far away from Calcutta and toher places. Supply of coal, packing bags, supply of cement etc. envisage problems which are effectively solved by the Government, ruled by the Congress party. This contribution is, therefore, an expenditure, wholly and exclusively for the purposes of the the business."
(5) The assessed contended before the Tribunal that the Government had given to the assessed an interest-free loan of Rs. 50 lakhs. The Government has also subscribed for Rs. 40 lakhs worth of preference capital in the company and had also agreed to buy the entire cement for the Hirakud Dam, and since the Congress party was a ruling party the payment was mtoivated by commercial considerations. The Tribunal recorded the finding that "we have carefully considered the matter, but we think that the payment has been rightly disallowed by the departmental officers as having no connection with the business carried on by the assessed-company."
(6) While it is true that the expenditure incurred need nto necessarily yield results or be incurred to directly benefit the business or be directly related to the earning of income yet it must be incidental to the business and must be necessitated or justified by commercial expediency. Before an expense can be allowed under section 10(2) (xv) it must be directly and intimately connected with the business and be laid out by the taxpayer in his character as a trader. The assessed has to establish a direct and intimate connection between the expenditure and the business i.e. between the expenditure and the character of the assessed as a trader. In short only such expenditure can be allowed which is really incidental to the trade itself. An expenditure remtoely connected with the trade does nto qualify for permissible deduction. The learned counsel for the assessed relied on Morgam (Inspector of Taxes) v. Tate & Lyle Ltd. In that case the assessed incurred expenditure in carrying out a "campaign" against the nationalization of sugar refining indusstry. The Commissioner recorded a finding that 'the sum in question was money wholly and exclusively laid out or 'expendedfor the purpose of the company's trade and was an admissible deduction from its profits for income-tax purposes. "The House of Lords by a majority decided that the money was spent for the purposes of company's trade and to preserve the very existence thereof and the finding of the Commissioner was, therefore, correct. That case is of no assistance to the assessed as the expense incurred to prevent seizure of the company's assets could nto but be accurately described as money expended for the purposes of enabling the company to carry on trade and earn profits. In this case the Tribunal has recorded a finding that the payment had no connection with the businsess of the assessed. I am inclined to agree with that view. It cannto be said that the expenditure is directly or intimately related to the business. The learned counsel for the assessed strongly emphasised the benefits received by the assessed from the Government by way of loan, purchases of preference shares and of cement for Hirakud Dam and the necessity, therefore, of helping the Congress in retaining power. There is ntohig to show as to when all this happened. That apart, the expense was neither directly nor intimately connected with the business of the assessed as a trader.
(7) In J. K. Ctoton Spg. & Wvg. Mills Co. Ltd. v. Commissioner of Income-tax U.P. the Allahabad High Court disallowed such a claim on the ground of absence of direct nexus between the business of the assessed and the contribution made to the Congress Parliamentary Board. I am in respectful agreement with the view of the Allahabad High Court. I am nto prepared to say that in no case can such an expenditure be allowed. An expense incurred voluntarily but wholly and exclusively for the expender's trade may in given circumstances, be a permissible deduction even though it ensures to some extent to a third parties' benefit. Similarly payments for political purposes may be for the purposes of the trade. In all such cases a link between the trade and the payment has to be established. I would in the circumstances, rest my decision in this case on the failure of the assessed to show that necessary conditions for allowance of the amount as a deduction were satisfied. This question, therefore, must be answered in the negative and against the assessed. That takes me to the third question. Mr. K. K. Jain, the learned counsel for the assessed, conceded that under clause (ii) of the proviso to Paragraph D of Part Ii read with the further proviso to the said paragraph D of the Finance Act, 1957 the amount could be levied and collected. He, however, said that the assessed had challenged the vires of the said provision of the Finance Act, 1957 by a separate writ petition which is pending and it was nto open to him to raise the question of the validity of the provision in this reference. In view of this the question must be answered in the affirmative and against the assessed.
(8) The point arising in the fourth question is covered in favor of the assessed by the decision of their Lordships of the Supreme Court in India Cement Limited v. Commissioner of Income-tax Madras . It was held in that case that the amounts spent towards stamp duty, registration fee, lawyer's fees for obtaining a loan from the Industrial Finance Corporation secured by a charge on the assessed's fixed assets was a permissible deduction under section 10 (2) (xv) of the Indian Income-tax Act, 1922.
(9) Mr. Dalip K. Kapur, the learned counsel for the Revenue strongly emphasised upon the necessity looking at the purpose for which the loan was obtained. He contended that if a loan is taken for the acquisition of a capital asset the expenditure would be capital. That contention was expressly negatived by their Lordships of the Supreme Court in India. Cement's case in the following words:-
"ALTHOUGHthe conclusion of the High Court was correct, we are nto able to agree with the principle that the nature of the expenditure incurred in raising a loan would depend upon the nature and purpose of the loan. A loan may be intended to be "used for the purchase of raw material when it is negtoiated, but the company may, after raising the loan, change its mind and spend it on securing capital assets. Is the purpose at the time the loan is negtoiated to be taken into consideration or the purpose for which it is actvally used. Further suppose that in the accounting year the purpose is to borrow and buy raw-material but in the assessment year the company finds it unnecessary to buy raw-material and spends it on capital assets. Will the Income-tax Officer decide the case with reference to what happened in the accounting year or what happened in the assessment year. In our opinion, it was rightly held by the Nagpur Judicial Commissioner in Nagpur Electric Light and Power Co. v. Commissioner of Income-tax, (1931) 6 I.T.C. 28, that the purpose for which the new loan was required was irrelevant to the consideration of the question whethter the expenditure for obtaining the loan was revenue expenditure or capital expenditure.
TOsummarise this part of the case, we are of the opinion that : (a) the loan obtained is nto an asset or advantage of an enduring nature; (b) that the expenditure was made for securing the use of money for certain period; and (c) that it is irrelevant to consider the object with which the loan was obtained. Consequently, in the circumstances of the case, the expenditure was revenue expenditure within section 10(2) (xv)."
(10) In these circumstances, I am nto in agreement with the view taken by the Tribunal that the expenditure was of a capital nature. The question must, therefore, be answered in the affirmative and in favor of the assessed. That disposes of the reference at the instance of the assessed.
(11) Now I take up the fifth question referred at the instance of the Commissioner.
(12) During the accounting year the assessed made additions to the assets of the comapny consisting, inter alia, of water-supply distribution lines, water-pipe lines, drainage and sanitary fittings. The Income-tax Officer disallowed development rebate on these items. On appeal by the assessed the appellate Assistant Commissioner decided that drainage and sanitary fittings, which were of the value of Rs. 46,877.00, did nto form part of the plant and machinery but were a part of the building and no development rebate could be allowed thereon. In respect of the first two items he found that the development rebate had nto been claimed before the Income-tax Officer and he directed the Income-tax Officer to look into the matter. On further appeal by the assessed to the Tribunal the Tribunal came to the conclusion that the items of drainage and sanitary fittings constitute part of plant and machinery and nto of building as held by the Appellate Assistant Commissioner and the assessed was, therefore, entitled to development rebate thereon.
(13) It may be pointed out that under section 10(2)(vi)(b) development rebate is allowed only in respect of machinery or plant and nto on building as in the case of depreciation. Plant has been defined under sub-section (5) of section 10 of the Indian Income- tax Act, 1922, as including vehicles, books, scientific apparatus and surgical equipment purchased for the purpose of business, profession or vocation. The definition is nto exhaustive and the question, therefore, is whether or nto the drainage and sanitary fittings constitute part of the plant or machinery. The nature of the items and their description is neither available on the printed record sent to us nor in the statement of the case. Whether or nto the items constitute plant which is "wholly used for the purposes of the business carried on by the assessed" will, to a considerable extent, depend on their description and the nature of use. I am nto, therefore, satisfied that the statement of the case is sufficient to enable me to determine the question raised. I would, therefore, refer the case back to the Appellate Tribunal for the purposes of indicating the nature of the assets, their description and how and where they are installed and/or utilised. The Tribunal will send the revised statement of case within two months. The reference at the instance of the assessed is, therefore, disposed of as discussed above with no order as to costs while that of the Commissioner sent back to the Tribunal for a further statement of case.
T.V.R. Tatachari, J.
(14) I agree