TaxTMI Login
Just a moment...
Press 'Enter' to add multiple search terms. Rules for Better Search
When case Id is present, search is done only for this
of 
of 
No Folders have been created
Are you sure you want to delete "My most important" ?
NOTE:
of of 
All Case Laws
of of All Case Laws
Note
Bookmark
Share
Don't have an account? Register Here
of <h1>Royalty payments to retired partners deemed capital expenditure, not revenue.</h1> <h3>Grover Soap Private Limited Versus Commissioner Of Income-Tax</h3> Grover Soap Private Limited Versus Commissioner Of Income-Tax - [1996] 221 ITR 299, 137 CTR 546 Issues Involved: The judgment involves determining the allowability of expenditure incurred by the assessee on account of royalty to two retired partners in computing the total income of the assessee.Details of the Judgment:Nature of Expenditure - Revenue or Capital: The judgment deliberates on whether the expenditure on royalty to the retired partners should be classified as revenue or capital expenditure. Referring to the case law of CIT v. Coal Shipments P. Ltd., the court emphasizes that the nature of the covenant should be decisive in such cases. The court cites instances where payments made to ward off competition in business were considered capital expenditure if the objective was to derive an advantage by eliminating competition over a period of time. The court concludes that the expenditure incurred by the assessee was aimed at outbidding a competitor and securing a monopoly in soap manufacturing for 15 years. Therefore, the court deems this expenditure as capital expenditure rather than revenue expenditure, as it was not exclusively for the business but for outbidding the competitor, thus justifying the Tribunal's decision.Conclusion: In light of the above analysis, the court answers the reference against the assessee and in favor of the Revenue, affirming that the expenditure on royalty to the retired partners should be treated as capital expenditure and not revenue expenditure, as it was incurred for the purpose of outbidding a competitor and securing a monopoly in the soap manufacturing business.
TaxTMI 