TMI Blog1976 (11) TMI 79X X X X Extracts X X X X X X X X Extracts X X X X ..... oleselling agents of M/s Mc Dowell Co. Limited a company having a distillery at Shertallai. There is no agreement conferring the sole-selling agency on the firm. But it is accepted that the firm was the sole-selling agent in the earlier years. Two of the partners for the firm had floated a limited company which is the assessee company was the same as the firm i.e., to carry on the business of liquor, soft-drinks etc. The Agreement between the firm and the company was on 24th Sept., 1970. The preamble stated that the company desired to buy the selective assets and liabilities from the firm in the business done by them. In particular, we will quote below two lines from the preamble. "AND WHEREAS the Vendors are desirous of selling to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r, did not accept that it was deductible. According to him, it was a capital expenditure. 6. On appeal, the Appellate Assistant Commissioner agreed with him. The AAC held that the firm had no right or nay property in the form of selling rights and so the questions of transferring it did not arise. On the ground that the shareholders of the company and the partners of the firm were common, he further held that it was a device to reduce the tax. 7. The assessee has came on further appeal before us. We will first of all dispose of two of the points which were taken up by the Appellate Assistant Commissioner. The first point is that there was no right for the firm which could be transferred. Now, it is not denied that firm was the selling ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the absence of any written agreement the agency itself had a very tenuous existence. 8. The second point taken up by the Appellate Assistant Commissioner was that the directors and the partners being the same it was only a device to reduce the tax. In other words, the view of Revenue appears to be that the transfer is a sham. It is of course possible to take such a view if there was sufficient material. The only material provided here is that the partners and the shareholders are the same. That by itself will not be conclusive in this matter. So, we cannot accept this view either. 9. We next consider the question whether the expense is capital or revenue. The learned Departmental Representative Mr. Rajappan pointed out that the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt as a whole that Rs. 2.13 Lakhs was paid for taking over the business as a going concern and the royalty paid for having authorised the company to negotiate with M/s. Mc Dowells to take over the selling agency and for assigning actually two different assets taken over by this agreement. It appears to us, therefore, that the facts of this case are identical with the facts of Travancore Sugars and Chemicals limited. In that case the assessee company took over three different business undertakings. For each one of the different undertakings, considerations were fixed in the agreement. Over and above such considerations the company agreed to pay the Government of Travancore which was owning the three business undertakings, a portion of the an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n of the firm authorising the assessee to negotiate M/s. McDowells and assessing the right of sole-selling agency. This is similar to the agreement of the Travancore Government in the case cited above regarding the license and purchase of the products. We are of opinion that the above authority is on all fours with the case at hand and for the same reason, we have to hold that it is only a revenue expenditure. 13. We will now distinguish some of the cases relied on by the learned Departmental Representative. Reliance was placed on the case of CIT vs. Naya Sahitya. In that case the Delhi High Court has not discussed the travancore Sugar's case at all. So unless the Supreme Court case is found to be inapplicable to the facts of the case we ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urt distinguished the case from Travancore Sugars. They observed that "If we take the ratio of the judgment it was more on the ground that the payment has no relation to the capital value of the asset that the decision was rendered". 15. The decision of the Orissa High Court in CIT vs. M/s. Belpahar Refractories Ltd., can also be distinguished. There, they have considered the Travancore Sugars case and had pointed out that it was not a case of payment of a part of the consideration money by spreading over a number of years. There were certain obligations undertaken by the Government unconnected with the sales and the Supreme Court relied upon the position that in view of the special three features noted by them, the annual payment had no ..... X X X X Extracts X X X X X X X X Extracts X X X X
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