1957 (3) TMI 62

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....oods to Ceylon. When that was subjected to control, the firm obtained the prescribed quotas from time to time to carry on its export trade. Sabapathy Mudaliar retired from the partnership on 6th February, 1944. The firm was reconstituted under the same trade name with the other three brothers as partners. The firm was entitled to its export quotas and the parties agreed that arrangements should be made with Sabapathy to get his quota separately in proportion to the 3 annas 3 pies share he had held in the dissolved partnership. As it would necessarily take some time to obtain a re-allocation of the quotas from the authorities, the new firm, which consisted of the three brothers, and which is the assessee in these proceedings, entered into an....

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....y the Appellate Assistant Commissioner. The Department appealed to the Tribunal. The Tribunal agreed with the view taken by the Income-tax Officer and disallowed the claim. On the application of the assessee the Tribunal referred to this Court under section 66(1) of the Income-tax Act the following question: "Whether the payments made to Sabapathy Mudaliar, Rs. 13,500 and Rs. 10,000 during the accounting years 1944-45 and 1946-47 respectively, can be deducted from the taxable profits of the assessee under the provisions of the Act?" The genuineness of the agreement dated 14th April, 1944, and that of the two payments made under it were never doubted. In paragraph 7 of the statement of the case, the Tribunal recorded: "T....

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....s. What the Tribunal in effect held, agreeing with the Income-tax Officer, was that the expenditure was of a capital nature, though the Tribunal characterised the payments as premia for the withdrawal of Sabapathy from the export branch of the firm. The Tribunal apparently overlooked the fact, that Sabapathy had retired from the partnership even on 6th February, 1944, and that there could be no question of paying him any premium for the export branch alone of the business of the original firm. At no stage was it the contention of the Department that it was a case of allocation of profits earned by the assessee firm from its export trade with Ceylon, though what was payable to Sabapathy under the terms of the agreement was apparently compute....

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....at factually it was not a case of such acquisition-the expenditure would not have been of a capital nature. The Appellate Assistant Commissioner, it should be remembered, recorded with reference to what he called the usual procedure adopted by exporters, who were purchasing export quota from others, that such purchases were not considered as acquiring capital assets. It is not, of course, the practice of the Department that decides the validity of a claim to deduct under section 10(2)(xv) of the Act the expenditure incurred for purchasing quota rights of others. In our opinion, the practice referred to by the Appellate Assistant Commissioner had legal sanction behind it. The quota itself, it should be remembered, is not a marketable commodi....