TaxTMI 
TaxTMI 
2025 (12) TMI 747
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....s the case of the respondent/applicant that the substantial questions of law, which have been framed vide orders dated 08.03.2017 and 10.03.2017 in these appeals, are covered by the judgment of this Court passed in the Assessee's five cases being ITA No.525/2025, 526/2025, 527/2025, 528/2025, & 531/2025 for different Assessment Years (AYs) titled Pr. Commissioner of Income Tax v. M/s. Remfry and Sagar, 2025:DHC:9183-DB. 3. Noting the contents of the applications and also Mr Indruj Singh Rai, learned SSC for the Appellant/Revenue has no objection if the early hearing applications are allowed, the same are allowed. The appeals are taken up for hearing. 4. The applications stand disposed of. ITA 200/2017; ITA 201/2017; ITA 207/2017; ITA 208/2017; ITA 209/2017; ITA 210/2017; & ITA 211/2017. 5. In these appeals under Section 260A of the Income Tax Act, 1961, following substantial questions of law have been framed by this Court vide order dated 08.03.2017, which reads as under:- "(i) Did the ITAT fall into error in allowing the license fee paid to M/s. Remfry & Sagar for use of goodwill by the assessee, having regard to the provisions in the Bar Council Rules and the....
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....icense to utilize the goodwill represented by the name "Remfry & Sagar". Mr. Vohra submitted that the name "Remfry & Sagar" had earned substantial goodwill which had been acquired over several decades as a result of delivering exceptional legal services. It was thus submitted that the payment of licence fee was solely for the purposes of enabling the newly constituted firm to derive benefits of the goodwill attached to the name "Remfry & Sagar". Bearing in mind the same constituting the primary purpose for payment of license fee, Mr. Vohra submitted the same could not be possibly construed as being an expenditure prohibited by law. 23. It was his submission that the appellants were wholly unjustified in seeking to interpret the provisions of the license agreement as embodying an intent of sharing of remuneration with RSCPL or the heirs of Dr V. Sagar. This, according to Mr. Vohra, clearly overlooks the principal purpose for which license fee was agreed to be paid and which was to use and exploit the goodwill attached to the name "Remfry & Sagar". It was thus his contention that if the purpose of payment of license fee were borne in consideration, the Court would come to th....
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....r an advantage for the enduring benefit of a trade : vide Viscount Cave, L.C., in Atherton v. British Insulated & Helsby Cables Ltd. [Atherton (Inspector of Taxes) v. British Insulated & Helsby Cables Ltd., 1926 AC 205 : 10 TC 155 (HL)] 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 puts the business on another footing altogether. Thus, if labour saving machinery was acquired, the cost of such acquisition cannot be deducted out of the profits by claiming that it relieves the annual labour bill, the business has acquired a new asset, that is, machinery. The expressions "enduring benefit" or "of a permanent character" were introduced to make it clear that the asset or the right acquired must have enough durability to justify its being treated as a capital asset. (3) Whether for the purpose of the expenditure, any capital was withdrawn, or, in other words, whether the object of incurring the expenditure was to employ what was taken in as capital of the business. Again, it is to b....
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....er of the payment would then be of no consequence. It is only in those cases where this test is of no avail that one may go to the test of fixed or circulating capital and consider whether the expenditure incurred was part of the fixed capital of the business or part of its circulating capital. If it was part of the fixed capital of the business it would be of the nature of capital expenditure and if it was part of its circulating capital it would be of the nature of revenue expenditure. These tests are thus mutually exclusive and have to be applied to the facts of each particular case in the manner above indicated." 25. Mr. Vohra also cited for our consideration the decision rendered by this Court in Shriram Refrigeration Industries Ltd Vs CIT9 and where the test was formulated as warranting a determination of the purpose for which the amount had been paid. It was thus contended that Courts have consistently applied the "purpose test" in order to ascertain the legitimacy of an expenditure stated to have been incurred in the course of and in furtherance of business. It is these rival submissions which fall for our consideration. 26. We at the outset note ....
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....the outset note that the validity of the gift deed was clearly an unwarranted digression since the primary question which arose for consideration was the validity of the expenditure incurred. The solitary transaction which arose for scrutiny was the payment of license fee. We fail to appreciate how the appellants could have meandered down the path of questioning the validity of the gift or doubting the motive, purpose and intent underlying the same. Whether the same was a measure adopted for the purpose of monetising the goodwill or a part of legacy planning were clearly not issues germane to the question whether the expenditure was liable to be disallowed. We, in this regard, also bear in consideration the undisputed fact that four unrelated parties joined the partnership and unanimously decided to make use of the goodwill and the name of the firm which had earned a considerable reputation. The appellants thus, and in our considered opinion, clearly committed an error in seeking to question the motive underlying the gift made by Dr. Sagar. 31. We then revert to the fundamental issue of whether the payment of license fee could be regarded as an expenditure incurred for a p....