TaxTMI 
TaxTMI 
TaxTMI 
1966 (9) TMI 44
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....ns were agreed to be sold by the Government of Travancore to the appellant-company. Clause 3 of the agreement provided that the cash consideration for the sale of assets of the Travancore Sugars Ltd. shall be 3.25 lakhs rupees. Clause 4(a) provided that the cash consideration for the sale of the Government Distillery shall be arrived at as a result of joint valuation by the engineers to be appointed by the parties. Clause 5(a) stated that the cash consideration for the sale of assets of the Government Tincture Factory shall be the value according to the books. Under clause 4(b) and (c) of the agreement the Government undertook to recognise the transfer of the licence from the licensees of the distillery to the appellant and to secure to it the continuance of the licence for a continuous period of five years after the termination of the then existing licence. Under clause 5(b) of the agreement the Government agreed to purchase the pharmaceutical products manufactured by the appellant in the tincture factory, for its medical requirements. Under clause 6 of the agreement all books of account and connected documents are to be open to inspection by the authorised officers of the Governm....
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....owing question of law to the High Court of Kerala : " Whether, on the facts and in the circumstances of the case, the payment of Rs. 42,480 by the assessee to the Travancore Government under the agreements dated Jane 18, 1937, and January 28, 1947, was allowable under section 10 of the Income-tax Act ? " By its judgment dated August 20, 1963, the High Court held that the payment of the aforesaid amount constituted capital expenditure and was not allowable under section 10(2)(xv) of the Income-tax Act. In this view the High Court felt it unnecessary to go into the merits of the respondent's contention that the payment represented only a division of profits. The present appeal is brought, by special leave, from the judgment of the High Court of Kerala dated August 20, 1963. On behalf of the appellant Mr. Asoke Sen submitted that the payment of Rs. 42,480 was not capital expenditure but was expenditure of revenue nature which was allowable under section 10(2)(xv) of the Act. It was pointed out that the annual payments under clause 7 were not part of the purchase price of the assets. Reference was made to clauses 3, 4(a) and 5(a) of the agreement and it was said that separate and....
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....d agreement. " It is often difficult, in any particular case, to decide and determine whether a particular expenditure is in the nature of capital expenditure or in the nature of revenue expenditure. It is not easy to distinguish whether an agreement is for the payment of price stipulated in instalments or for 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. 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....
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....rice consisted of fixed amount and a certain commission payable for an indefinite period. The consideration in the particular agreement which the Court of Appeal had to consider, which was in addition to the fixed amount payable by the purchaser to the vendor, was 1 shilling for each bicycle not being mechanically propelled bicycle without deduction and pound 1 for each mechanically propelled bicycle without deduction, and this was to be paid on the turnover by the purchasing-company. This sum of 1 shilling and pound 1 was to be paid without any limitation of time, and this sum was not related to any special sum as being part of the price to be paid by the purchaser to the vendor. In the course of his judgment, Lord Greene, Master of the Rolls, observed as follows at page 182 of the report : " The true nature of a sum payable to a recipient for purposes such as the present is to be ascertained from all the circumstances relevant to that matter. The true nature of the sum is not necessarily its nature in law, but its nature in business or in accountancy whichever way one likes to put it, because from the legal point of view there may be no difference whatsoever as between the part....
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....ton of slack coal raised from the colliery and sold and rented by the company from the colliery. The question arose whether the sum representing the commission paid by the assessee-company to the vendor under the terms of the agreement was a revenue expenditure. It was held by the Bombay High Court that as the payment made by the assessee-company was a payment made for an indefinite period, a payment made in relation to the turnover of the company and not in relation to its profits, and as the payment had no bearing to any specific sum fixed as part of the price for the purchase of the undertaking, it was in the nature of a revenue payment and not a capital payment. On behalf of the respondent Mr. S. T. Desai referred to the decision of the Judicial Committee in Minister of National Revenue v. Catherine Spooner. In that case, the assessee had sold all her right, title and interest in some land which she owned in freehold to a company in consideration of a certain sum in cash, of certain shares in the company and an agreement to deliver to her 10 per cent. of oil produced from the land. The transferee-company, after it had commenced operations, struck oil and raised some of it in ....
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.... case where the facts are closely parallel. It is not, however, possible for us to finally determine this appeal because the High Court has not dealt with the other questions arising in this reference. Even if the payment of the commission to the Government by the assessee is not capital but revenue payment, certain other questions arise for consideration in this case. In the first place, it has to be determined whether the appellant is right in his argument that the payment of the commission is tantamount to diversion of profits by a paramount title. In this connection reliance was placed on behalf of the appellant upon the decision in Raja Bejoy Singh Dudhuria v. Commissioner of Income-tax, in which the assessee succeeded to the family ancestral estate on the death of his father. Subsequently his step-mother brought a suit for maintenance against him in which a consent decree was made directing the assessee to make a monthly payment of a fixed sum to his step-mother and declaring that the maintenance was a charge on the ancestral estate in the hands of the assessee. In computing his income, the assessee claimed that the amounts paid by him to the step-mother under the decree sh....