TaxTMI 
TaxTMI 
1969 (11) TMI 16
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....ay 4, 1938, on the same terms and conditions as the original agreement. The assessee-company then entered into the business of manufacture of cement in the former Jind State. On May 27, 1938, the assessee-company entered into an agreement, annexure " B " to the statement of the case, with Mr. Prabhu Dayal Agrawal. In the preamble of that agreement it was stated that Mr. Prabhu Dayal Agrawal, being one of the promoters of the assessee-company, had rendered considerable service in its promotion, had helped in bringing about the agreement of April 2, 1938, between the former Ruler of Jind State and Mr. Shanti Prasad Jain, and had enquired and found kankar deposits in the former Jind State, suitable for manufacture of cement. It was then said that the parties agreed that the said beneficiary (Mr. Prabhu Dayal Agrawal) will get a commission so long as agreement exists between this company and the Government of Jind State at the rate of 1% on the yearly net profits of the company derived from the cement factory at Dalmia Dadri, including all the extensions that will be carried on in the said factory from time to time. Such yearly net profits will be calculated after making all proper all....
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.... Dayal Agrawal under the agreement with him, the latter instituted a suit against it making a claim under the agreement. In that suit the parties settled the matter on June 11, 1954, and it is in the assessment order, annexure " A " to the statement of the case, made by the Income-tax Officer that the settlement between the parties was on the terms that the assessee company agreed to pay an amount of Rs. 15,000 under the agreement each year for the years 1951, 1952 and 1953, and terminating the agreement of May 27, 1938, on and from June 11. 1954, it agreed to pay a lump sum of Rs. 70,000 in lieu of Mr. Prabhu Dayal Agrawal's claim under the agreement with it. The payments were made to him by June 15, 1954. This latter amount of Rs. 70,000 has been claimed as a deduction by the assessee-company under section 10(2)(xv) of the Act as a revenue expenditure. The Income-tax Officer allowed the first amount of Rs. 18,597 as revenue expense for the assessment year 1955-56, but disallowed Rs. 70,000 as revenue expenditure being of the opinion that the expenditure having been made once and for all, absolved the assessee-company from the burden of an onerous character and the payment did not....
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....ement of raw materials was rightly allowed by the Income-tax Officer, the learned Tribunal was of the opinion that the payment of Rs. 70,000 as compensation for terminating the earlier agreement was also of the same nature admissible as revenue expenditure. So both the items were allowed to the assessee-company as deductions being revenue expenditure. On an application by the Commissioner of Income-tax, Patiala, the Tribunal under section 66(1) of the Act referred these questions to this court : " (1) Whether, on the facts and in the circumstances of the case, the payment of Rs. 18,597 by way of Commission to Shri Prabhu Dayal was allowable as revenue expenditure ? and (2) Whether, on the facts and in the circumstances of the case, the compensation of Rs. 70,000 paid to Shri Prabhu Dayal was allowable as revenue expenditure ? " In Assam Bengal Cement Company Ltd. v. Commissioner of Income-tax at page 44, their Lordships observed : " If what is got rid of by a lump sum payment is an annual business expense chargeable against revenue, the lump sum payment should equally be regarded as a business expense, but if the lump sum payment brings in a capital asset, then that put....
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....upon the same considerations and has to be just one answer. However, the learned counsel for the Commissioner of Income-tax has urged that even if the answer to the first question is in the affirmative, it does not necessarily follow that the answer to the second may also be in the affirmative. His argument is that ordinarily the nature and character of a receipt is the same as that of expenditure with regard to a particular transaction, as an amount of money received as capital receipt would be capital expenditure in the hands of the payer. The learned counsel has in support of this relied on a Division Bench decision of this court concerning the very agreement under consideration in this case and that case is reported as Commissioner of Income-tax v. Prabhu Dayal. In that case it was urged on the side of the revenue that the very amount of Rs. 70,000 of the second question in this case was in the hands of Mr. Prabhu Dayal Agrawal revenue receipt and not a capital receipt, but the learned, judges held that the payment of this amount to him was in extinction of the agreement earning him yearly return and so this payment was in the nature of a capital receipt on his par....
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.... No doubt, by the termination of the earlier agreement with Mr. Prabhu Dayal Agrawal the assessee-company has shook off liability for recurring annual payment of commission to him, but thereby there has not come into existence an asset or an advantage of an enduring benefit to the trade or business of the assessee-company. Its effect has been to free the profits of the assessee-company from the claim of Mr. Prabhu Dayal Agrawal. This apparently is not bringing into existence an asset or an advantage for the enduring benefit of the assessee-company's trade or business. So this argument on the side of the Commissioner of Income-tax cannot be accepted. It is further urged by the learned counsel for the Commissioner of Income-tax that the payment of the commission to Mr. Prabhu Dayal Agrawal under the agreement of May 27, 1938, was on account of-(a) enquiry and finding of kankar deposits suitable for manufacture of cement, and (b) efforts as promoter of the assessee-company including the bringing about of the agreement of April 2, 1938, between the Ruler of the former Jind State and Mr. Shanti Prasad Jain. The learned counsel contends that remuneration for promotion of a company can....
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....is not a court of appeal in a reference under section 66(1) of the Act and it is not open to the High Court in such a reference to embark upon a re-appraisal of the evidence and to arrive at findings of fact contrary to those of the Appellate Tribunal. It is the duty of the High Court while hearing the reference to confine itself to the facts as found by the Appellate Tribunal and to answer the question of law in the context of those facts. It is true that the finding of fact will be defective in law if there is no evidence to support it or if the finding is perverse. But in the hearing of a reference under section 66(1) of the Act it is not open to the assessee to challenge such a finding of fact unless be has applied for the reference of the specific question under section 66(1)." There, of course, the matter was sought to be reopend by the assessee, and here that is sought to be done on the side of the revenue, but the position is no different. So on the side of the revenue this finding of fact by the Tribunal stands unquestionable. On this finding, in view of the decisions of their Lordships in the cases of Assam Bengal Cement Company Ltd. and G. J. Coelho, this expenditure ....