EMPIRE JUTE CO. LID. versus COMMISSIONER OF INCOME TAX

Citation: [1980] 3 S.C.R. 1370 · Decided: 09-05-1980 · Supreme Court of India · Bench: P.N. BHAGWATI · Disposal: Appeal(s) allowed

Cited by 3 judgment(s) · see the full citation network in Lexace

Judgment (excerpt)

A 
B 
'C 
D 
E 
}' 
G 
1370 
EMPIRE JUTE CO. LID. 
v. 
COMMISSIONER OF INCOME TAX 
May 9, 1980 
[P .. N. BHAGWATI, v. D. TuLZAPURKAR AND R s. PATHAK, JJ.] 
Allowing deduction 
under section 
10(2>(xv) of the 
Income Tax Act-
Revenue expenditure and Capital expendituret--Membt:r of the 
Jute 
Mill 
Ass0t:iation entering into a working time agreement restricting the number o/ 
lt•orking hours per week for 
which the mills shall be 
entitled to work their 
·looms, and also providing for transfer of such working hours between one mill 
and another amongst a particular Croup of Mills--Transfer styled as sale of ,~ 
loom hours-Whether the purchase revenue expenditure or capital expenditure ?\. 
for the purposes of Section 10(2)(xv) of the Act. 
' 
Right from 1939, the demand of jute in the world market was rather lean 
and with a view to adjusting the production of the jute mills to the dema.nd 
of the world market, various jute mills formed an Association styled as Indian 
Jute Mills Association and 
the appellant is 
one such member 
of the said 
Association. As per the objects of the Association a quinquenniel working time 
agreement was entered into between the members of the Association restric:ing 
the number of working hours per week, for which the mills shall be entitled 
to work their looms. The· fourth working time 
Agreement was 
en:ered into 
between the members of the Association on 9th December, 1954 and it Was to 
remain in force for a period of five years from 12th December 1954. As per 
the first clause of t~e fourth working time Agreement no signatory shall work 
' t 
more than forty five hours of work per week subject -to alteration in accordance 
~ 
with the provisions of clauses 7(1)(2) and (3) and further subject inter al'a to 
the provision of clause (10) and under that clause, a joint and several ag~ 
ment coUld be made providing that throughout the duration of the working 
time agreement, members with registered complements of loOm not exceeding 
220 shall be entitled to work upto seventy two hours per week. Clause 6(a) 
enabled members to be registered as a "Group of Mills" if they happened to 
be under the control of the same managing agents or were combined bv eny 
... 
arrangement or agreement and it was open to any member of the Group Mills-} 
so registered to utilise the allotment of hours of work per week of other mem-J 
hers in the same group who were not fully utilising the hours of work allow-
able to them under ·the working time agreement, provided such transfer of 
hours of 'work was for a period not less than six months. Clause 6(b) further 
"i 
prescn"bed three other conditions precedent subject to which the allotment of 
.. 
hours of work transferred by one membor to another could be utilised by the 
latter and two of them were: (i) All agreements to transfer shall. as a condi-
tion precedent to any rights being obtained by transferee, be submitted wilh 
an explanation to the Committee and Committee's decision ... whether the 
~ ... 
transfer shall be allowed sball be final and conclusive and (iD If the Com-
mittee sanctions the transfer, it shall be a condition prec.edent to its utffisation 
that a certificate be issued and 
the transfer registered. 
This transaction of 
tramfer of allotment of hours of wort per week was commooly referrod to as 
sale of looms hour> by otle member to anotber. The consequence ·of. oacb" 
,. 
:-.: "-~ 
EMPIRE JUTE CO. V. COMMISSIONER OF INCOME TAX 
1371 
uansfer was that the hours of work per week transferred by a member wero 
A 
liable to be deducted from the working hours per week allowed 
to such 
member under the working time agreement and the member in whose favour 
euch transfer was made entitled to utilise the number of working hours per 
,4. 
week tramferred to him in addition to the working hours per week allowed 
to him under the working time agreement 
, The assessee, under this clause purchased loom hours from four different 
jute manufacturing concerns which were signatories to the .working time 
agreement, for the 
aggregate sum of Rs. 2,03,255/-
during the 
year 1st. 
AugllSt 1958 to 31st July 1959. ln the course of the assessment year 1960-61 
for which the relevant accounting year was the previous year 1st August 1958 
to 31st July 1959, the assessee claimed this amount of 
Rs. 
2,03,255/- as 
zevenue expenditure on the ground that it was part of the cost of operating 
thC loom<1 which constituted the profit making apparatus of the ass

Excerpt shown. Read the full judgment & AI analysis in Lexace.