TaxTMI 
TaxTMI 
1985 (8) TMI 331
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....ture and the claim of deduction was tenable under s. 10(2)(xv) of the Act. On reaching this conclusion, the court was of the view that consideration as to whether the payment made by the assessee did not form part of its real income was unnecessary and answered the reference in favour of the assessee. The Commissioner, on obtaining special leave, is in appeal before this court. The short facts relevant for appreciating the question for consideration are these: M/s. Bharat Barrel & Drum Manufacturing Co. Ltd. (" Bharat Barrel " for short) gave its sole selling agency to a firm, Jalan Trading Co., by an agreement dated May 1, 1951, for two years with right of renewal. Assessee-respondent is a private company incorporated on October 16, 1952. Under a deed of assignment dated December 30, 1952, the benefits under the agreement dated May 1, 1951, were assigned to the assessee and from January 1, 1953, under the assignment, the respondent carried on the business as selling agents of Bharat Barrel. From May 1, 1953, on the basis of the option for renewal exercised by the assessee, an agreement was entered into between Bharat Barrel and the assessee in respect of the sole selling agency ....
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....t to carry on the sole selling agency of Bharat Barrel Ltd., or in any case to acquire a benefit of an enduring nature. It is true that in this case, no ascertained sum is mentioned for acquiring the right or an enduring benefit. But, in our opinion, this factor alone is not a decisive factor in every case. The facts and the circumstances of every case have to be looked into and if on the whole it appears that what was acquired was an asset of an enduring benefit by expending a certain sum, the expenditure can well be held to be a capital expenditure and not revenue expenditure. In certain cases, it may well be that in conjunction with other facts, the fact that there is no ascertained sum mentioned in order to acquire the asset of an enduring benefit, would lead to the inference that the expenditure is not a capital expenditure. But in this case, we have no doubt that the amount in question was spent for acquiring an asset of enduring benefit and, therefore, we have to hold that the expenditure in question was a capital expenditure..." The High Court also negatived the assessee's stand that no enduring asset was acquired and held : " We cannot accept the assessee's submission th....
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....w that the case before us is in material respects similar to Travancore Sugars' case [1966] 62 ITR 566 (SC)." The High Court did not examine the aspect relating to whether the payment made by the assessee did not form part of its real income by saying : " It is enough for our purpose that the payment is deductible under s. 10(2)(xv) of the Act." A four-judge bench of this court in Assam Bengal Cement Co. Ltd. v. CIT [1955] 27 ITR 34, indicated that the line of demarcation between capital expenditure and revenue expenditure is very thin. Several English decisions were referred to and the court approved the opinion of the Full Bench of the Lahore High Court in Benarsidas Jagannath, In re [1947] 15 ITR 185, where Mahajan J. (as he then was), speaking for the court, had successfully attempted a synthesis. This court observed : " This synthesis attempted by the Full Bench of the Lahore High Court truly enunciates the principles which emerge from the authorities. In cases where the expenditure is made for the initial outlay or for extension of a business or for a substantial replacement of the equipment, there is no doubt that it is capital expenditure. A capital asset of the business....
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....usiness point of view and come to the conclusion whether on a fair appreciation of the whole situation, the expenditure incurred in a particular case is of the nature of capital expenditure or revenue expenditure in which latter event only, it would be a deductible allowance under section 10(2)(xv) of the Income-tax Act. The question has all along been considered to be question of fact to be determined by the income-tax authorities on an application of the broad principles laid down above and the courts of law would not ordinarily interfere with such findings of fact if they have been arrived at on a proper application of those principles." In that case before this court, a lease was obtained with certain stipulations including the payment of a sum of Rs. 5,000 per year. The court found that it was an enduring benefit for the benefit of the whole business of the company. The fact that it was a recurring payment was immaterial because one had got to look to the nature of the payment which in its turn was determined by the nature of the asset which the company had acquired. The asset which the company had acquired in consideration of this recurring payment-the right to carry on its ....
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.... making annual payments in the nature of income. The court has to look not only into the documents but also at the surrounding circumstances so as to arrive at a decision as to what was the real nature of the transaction from the commercial point of view. No single test of universal application can be discovered for a solution of the question. The name which the parties may give to the transaction which is the source of the receipt and the characterization of the receipt by them are of little consequence. The court has to ascertain the true nature and character of the transaction from the covenants of the agreement tested in the light of surrounding circumstances." So far as these observations formulating the tests are concerned, they are not different from those laid down by this court in Assam Bengal Cement Co.'s case [1955] 27 ITR 34. The court then proceeded to apply these tests to the facts of the case and observed (p. 571 of 62 ITR) : " Examining the transaction from this point of view, it is clear in the present case that the consideration for the sale of the three undertakings in favour of the appellant was : (1) the cash consideration mentioned in the principal agreement....
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....ourt by its judgment in Travancore Sugars & Chemicals Ltd.'s case[1966] 62 ITR 566 had sent down the matter to the High Court for a redisposal and the very matter again came before this court, this time at the instance of the Revenue and the judgment is reported in CIT v. Travancore Sugars & Chemicals Ltd. [1973] 88 ITR 1 (SC). At page 10 of the Report, this court observed : " In considering the nature of the expenditure incurred in the discharge of an obligation under a contract or a statute or a decree or some similar binding covenant, one must avoid being caught in the maze of judicial decisions rendered on different facts and which always present distinguishing features for a comparison with the facts and circumstances of the case in hand. Nor would it be conducive for clarity or for reaching a logical result if we were to concentrate on the facts of the decided cases with a view to match the colour of that case with that of the case which requires determination. The surer way of arriving at a just conclusion would be to first ascertain by, reference to the document under which the obligation for incurring the expenditure is created and thereafter to apply the principle embalm....
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....Mr. Desai by learned counsel for the Revenue on the ground that such a plea had not been canvassed in the earlier stages of the matter. The question referred to the High Court did raise the issue and the High Court in the penultimate paragraph of its judgment had declined to go into this question by saying that it was sufficient for the disposal of the reference once it took the view that the payment was deductible under s. 10(2)(xv) of the Act. Mr. Desai wanted this aspect of the matter to be sent back to the High Court, but we are not inclined to do so in consideration of the fact that the assessment is for the year 1954-55 a period three decades away. Thereupon, counsel for the both sides agreed to, advance their arguments in regard to this aspect to enable this court to finally deal with this question avoiding remand. Section 10(1) of the Act provides : " The tax shall be payable by an assessee under the head 'Profits and gains of business, profession or vocation' in respect of the profits and gains of any business, profession or vocation carried on by him." Tax, therefore, under this provision is payable on income and if income is not earned by the assessee, no tax is payabl....