TMI Blog1979 (3) TMI 2X X X X Extracts X X X X X X X X Extracts X X X X ..... was no written agreement conferring the sole selling agency between M/s. McDowells Co. and the firm. But it is beyond dispute that the firm had the right of sole selling agency vis-a-vis the company in the earlier years. Two of the partners of the firm floated the limited company which is the assessee in this case. The main business of the company was to be the same as that of the firm. By an agreement dated September 24, 1970, the company undertook to take over some of the assets and liabilities in the business done by the firm. The terms and conditions of the agreement would be noticed presently. The company was also to be given the right to carry on the business in continuation of the firm. In consideration of assigning the rights to carry on the business of sole selling agency the firm was to be entitled to a royalty of Re. 1 per case of liquor sold by the company. It was also provided that the company was to pay 2.31 lakhs of rupees in fully paid shares to the partners of the firm, as consideration for the sale. For the accounting year ended 30th September, 1971, the assessee-company paid Rs. 21,584 by way of royalty to the firm. For the accounting year ended September 30 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... id by Cordozo) by matching the colour of one case against the colour of another. " To the same effect are numerous other decisions, both English as well as Indian. We spare ourselves the need and the responsibility of examining these. A collection of the different principles highlighted in various decisions dealing with this aspect of the matter, will be found in the well known treatise by Kanga and Palkhivala on Income-tax (7th edn.) Vol.I, pages 479 to 485. At page 486, the learned authors, after discussions, have stated the position that no test can be said to be of universal application. The learned authors have quoted the Supreme Court's decision in Golan Lime Syndicate v. CIT [1966] 59 ITR 718, 727, where it was stated: " It is not the law that, in every case if an enduring advantage is obtained, the expenditure for securing it must be treated as capital expenditure ". That is only to show that even the principle of enduring benefit or advantage, which at one time rode supreme, cannot be accepted as of universal application. The safe principle to be followed is that the decision must essentially depend upon the facts and circumstances disclosed by each individual case. We t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... usiness. 2. In consideration of assigning the rights to carry on business of sole selling agency of 'McDowells' the Vendors will be entitled to a Royalty of Rupee one per case for every ease sold by the company. 3. In consideration of the said Sale, by the Vendor to the company, the company shall pay Rs. 2,31,000 (Rupees Two lakhs Thirty one thousand only) in fully paid 231 equity shares of Rs. 1,000 each but the company shall allot to (1) Thomas Jacob (2) Mrs. Lalitha Jacob (3) Jacob (4) Susan Thomas (5) Jacob Thomas and (6) Mrs. Susan Thomas as Vendors' nominees, 110 shares of Rs. 1,000 each out of the said 231 shares of. Rs. 1,000 each otherwise payable to the Vendors with the result that the Vendors, viz., (1) Susanna Jacob (2) Rachael Thomas (3) Beena Jacob and (4) George Jacob partners of M/s. Jacobs, shall be allotted 121 shares of the nominal value of Rs. 1,000 each as fully paid up. The shares shall be allotted as under : ........ " The provisions of the document have appeared to us to be rather complex and ingenious. The preambulary part states that the vendors are desirous of selling to the company the selective assets and liabilities and have also authorised the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 72] 84 ITR 567. Counsel for the assessee on the other hand, placed the strongest reliance on the decision of the Supreme Court in Travancore Sugars Ltd.'s case [1966] 62 ITR 566, the principles in which were reaffirmed and restated by the Supreme Court, when the matter went up again to that court, after remand directed on the earlier occasion, vide CIT v. Travancore Sugars and Chemicals Ltd. [1973] 88 ITR 1 (SC). It would be convenient if we, examine the principle laid down in the Travancore Sugars Ltd.'s case. The appellant-company in that case was floated to take over certain assets of an undertaking by the Government of Travancore. It entered into an agreement with the Government of Travancore, whereby the assets of a sugar company and a distillery and a tincture factory, run by the Government, were agreed to be sold to the appellant-company to be floated for that purpose. The cash consideration for the sale of the assets of the sugar manufacturing concern was Rs, 3.25 lakhs; and that, for the sale of the distillery, was to be arrived at by joint valuation; and that for the tincture factory was to be the book value. The Government agreed to recognise a transfer of the licence ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ertain price and the price may be payable in a lump sum or may be payable by instalments. The mere fact that the capital sum is payable by instalments spread over a certain length of time will not convert the nature of that payment from the capital expenditure into a revenue expenditure but the payment of instalments in such a case would always have some relationship to the actual price fixed for the sale of the particular undertaking. As we have already mentioned, there is no specific sum fixed in the present case as an additional amount of price payable in addition to the cash consideration and payable by instalments or by any particular method. In view of these facts we are of opinion that the payment of the annual sum of Rs. 42,480 in the present case is not in the nature of capital expenditure but is in the nature of revenue expenditure and the judgment of the High Court of Kerala on this point must be overruled. " In the light of the principles laid down by the above ruling, counsel for the assessee raised a two-fold argument before us. In the first place, he argued that on a conspectus of the provisions of annex. A, what was sold was only the assets and the business, and t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... amount of commission to its profit and loss account and showed the sum of Rs. 43,000 odd as deduction therefrom. The question arose whether the deduction was allowable or not. In dealing with the question the Supreme Court observed : " Mr. Maheshwari has referred to clause 13 of the indenture reproduced above and has contended that the appellant could make no claim to the amount of Rs. 43,333 which had been retained by BIC. This fact, in our opinion, would make no material difference so far as the true nature of that amount was concerned. The amount was deducted by BIC in pursuance of the agreement entered into by the appellant with BIC and Sharma Co., according to which the appellant had to pay that amount in the form of deduction out of its commission in consideration of being, appointed the sole selling agent of the Kanpur Cotton Mills. The present is a case relating to the application of income to discharge a liability incurred not in the course of running the business but a liability undertaken for the purpose of acquiring the sole selling agency right which was indisputably an asset of capital nature. " Counsel for the revenue placed strong reliance on the clear and st ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... some length of time, the same result would not follow if there is no certainty of the duration of the advantage and the same can be put to an end at any time. How long the period of contemplated advantage should be in order to constitute enduring benefit would depend upon the circumstances and the facts of each individual case. " The decision of the Madras, High Court in Fenner Woodroffe Co.'s case [1976] 102 ITR 665 refers to and distinguishes the Travancore Sugars' case [1966] 62 ITR 566 (SC). If does not refer to M. K. Brothers' case [1972] 86 ITR 38 (SC). Counsel for the revenue commented that the decision had relied on the dissenting judgment of Sikri C. J. in Devidas Vithaldas Co.'s case [1972] 84 ITR 277 (SC). He also referred to the comment in Kanga at p. 488 and again at p. 458. The Delhi decision in [1972] 84 ITR 567 (CIT v. Naya Sahitya) is helpful to the revenue. But counsel for the assessee complained that it does not make a comprehensive survey of the authorities. In the light of the principles laid down by the above decisions, and concentrating ourselves on the facts and the circumstances disclosed in this case, and particularly on the provisions of the doc ..... X X X X Extracts X X X X X X X X Extracts X X X X
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