2005 (1) TMI 35

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....tion paid on termination of the agreement with the marketing distributor would be a capital expenditure? 2. Whether the Income-tax Appellate Tribunal was right in its finding that the compensation paid was towards the acquisition of profit-making apparatus? 3. Whether the Tribunal was right in deciding that the transfer of the staff and managerial personnel would constitute a profit making apparatus for the company?" Though the Appellate Tribunal has referred three questions, we are of the view that the first question alone would be sufficient and accordingly, the questions referred to above are reframed as under: "Whether, on the facts and circumstances of the case, the Tribunal was right in law in holding that the compensation....

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....terly instalments commencing from the quarter ended on September 30, 1984, is a capital expenditure or revenue expenditure in the hands of the assessee. To appreciate the point, it is necessary to refer to certain facts. The assessee had entered into agreements with three selling agents for distributing its products for over 20 years. It is also relevant to mention here that out of the three companies/selling agents, two companies belong to the same group of companies and the third distributor is a firm constituted by the partners belonging or known to the assessee group. The said agreements were terminated during the relevant previous year and the assessee took over the agents' marketing establishments for the distribution of its products.....

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.... of enduring nature and the mere fact that a payment constitutes income or capital receipt in the hands of the recipient is not a material consideration in determining the question whether the payment is revenue or capital expenditure in the hands of the payer. Learned counsel for the assessee relied upon the decisions of the Supreme Court in Empire Jute Co. Ltd. v. CIT [1980] 124 ITR 1, CIT v. Ashok Leyland Ltd. [1972] 86 ITR 549 and the decision of the Bombay High Court in CIT v. Glaxo Laboratories (India) P. Ltd. [1978] 114 ITR 110. There can be no dispute with reference to the proposition that though a payment may be a capital receipt in the hands of the recipient, it need not be a capital expenditure in the hands of the payer. The S....

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.... acquisition of the distributing agents' infrastructures and since a profit-making apparatus was acquired by the assessee on payment, the payment is a capital expenditure. As far as the decision of the Bombay High Court in CIT v. Glaxo Laboratories (India) P. Ltd. [1978] 114 ITR 110 is concerned, the decision has no application as in the case before the Bombay High Court, the amount was not paid for the acquisition of any infrastructure, but it was a case of termination of distribution agency, and we find that the facts are entirely different from the case of the assessee. In Glaxo Laboratories's case [1978] 114 ITR 110 (Bom) the amounts were paid so that there would not be any hindrance from the agents or risk from the competitors or th....