COMMISSIONER OF INCOME TAX Vs. PURE BEVERAGES LTD
HIGH COURT OF GUJARAT
COMMISSIONER OF INCOME TAX
PURE BEVERAGES LTD
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(1.) The Income-tax Appellate Tribunal has referred the following question under section 256(1) of the Income-tax Act, 1961 ("the Act", for short), for our opinion :
"1. Whether, on the facts and in the circumstances of the case, the Appellate Tribunal has been right in law in holding that the claim of reimbursement of amount of advances as an allowable deduction
2. Whether, on the facts and in the circumstances of the case, the Appellate Tribunal has been right in law in directing the Income-tax Officer to allow that part of the expenditure which was incurred by the assessee in the calendar year 1974 for the assessment year 1975-76 -
(2.) The aforesaid questions arise in the background of the facts that in the assessment year 1975-76, the assessee-company claimed deduction of Rs. 65,000 for the electric cooler advances. It is the contention of the assessee that it had made arrangement with the United Commercial Bank to give advance to its dealers for purchase of electric coolers. This type of arrangement was required to be done in the year 1969. Prior to 1969, it is the case of the assessee-company that it used to purchase and supply electric coolers to the retailers for keeping the beverages (fanta and coca cola). That practice was discontinued and the assessee-company had persuaded the dealers to purchase coolers for chilling the drinks. The dealers expressed their difficulties in investing Rs. 3,000 to Rs. 6,000 each and desire that the assessee should devise some arrangement by which the purpose could be served. The assessee, in turn, worked out the arrangement with the bank as stated above. The assessee-company had agreed to reimburse the bank for any loss which may arise on account of non-recovery of such advances. The advances were given in the year 1969-70. The bank could not recover about Rs. 72,000. Thereafter, the assessee succeeded in recovering about Rs. 7,000 and had reimbursed the bank an amount of Rs. 65,000 which was claimed as deduction. The Income-tax Officer rejected the claim of the assessee.
(3.) In appeal, the Commissioner of Income-tax (Appeals) arrived at the conclusion that the soft drinks sold by the assessee-company would not taste good unless they were chilled and it was in the interest of the assessee-company to see that the retailers had coolers. The liability to the bank was, therefore, in the course of the assessee's business and, hence, that deduction was allowed.;
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