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1949 (10) TMI 1 - ALLAHABAD HIGH COURT

1949 (10) TMI 1 - ALLAHABAD HIGH COURT - [1950] 18 ITR 13 - Miscellaneous Case No. 69 of 1947 - Dated:- 26-10-1949 - Malik (CJ) And Seth, JJ. For the Assessee : Balram Upadhya For the Commissioner : G. Mehrotra JUDGMENT Malik, CJ. This is a reference by the Income-tax Appellate Tribunal, Bombay, under Section 66(1) of the Indian Income-tax Act of 1922. The assessment year in question was 1943-44 and the financial year was 1942-43. The assessee was a registered firm, Messrs. Jagat Bus Service, Sa .....

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efore this agreement was entered into motor vehicles could run on this road but they were liable to pay a tax of ₹ 10 per trip per motor vehicle. Under this agreement the assessee had to pay a sum of ₹ 20,000 annually as nazrana in the beginning of each year. The assessee was, however, entitled to a proportionate reduction should the road remain impassable for more than sixty days in any one year for the number of days exceeding sixty. The agreement further provided that the assessee .....

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as not in a motorable condition for several months in the year in question and the assessee claimed proportionate reduction and instead of ₹ 20,000 the assessee had to pay a sum of ₹ 5,000 only in the year 1942-43 commencing from 13th April, 1942. The question for decision is whether the sum payable to the Tehri-Garhwal State for the use of the road is in the nature of a capital expenditure and is, therefore, not deductible from the income or is in the nature of a revenue expenditure .....

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on that the amount was payable by the assessee for acquiring monopoly rights to ply motor buses on hire on the particular route and it was not a payment made for the use of the road and for keeping the road in good condition as it was no business of the assessee what the State did with the money received from him. Reliance was placed by the Tribunal on the decision in Sardar Bahadur Sardar Singar Singh and Sons v. Commissioner of Income-tax, U.P. and C.P. [1944] 12 I.T.R. 504. On an application .....

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e road was not in a motorable condition, the Department was not justified in treating this as an agreement to pay one lakh by instalments of ₹ 20,000. He has further urged that, if the assessee had to pay for each motor vehicle a sum of ₹ 10 per trip, the payment would have come to much more, and the sum of ₹ 10 payable per trip could not be said to be anything but revenue expenditure, and that, if the assessee managed to have this expenditure reduced by paying lump sum for the .....

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these vehicles had to make only one trip a day. I can find no clear evidence however as to how many trips each vehicle did during this period to enable me to come to a correct conclusion. In the agreement, which is in English, the assessee is called the monopolist and by the agreement it is said that a monopoly is being given to the assessee and the sum of ₹ 20,000 is the nazrana payable by the monopolist for the monopoly and the other advantages secured under the agreement. The question, .....

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tion 10(2)(xii) of the Income- tax Act which reads as follows:- "any expenditure (not being in the nature of capital expenditure or personal expenses of the assessee) laid out or expended wholly and exclusively for the purposes of such business, profession or vocation." It is clear that the sum of ₹ 5,000 is not personal expenses of the assessee. The question is whether it is in the nature of capital expenditure. The words "capital expenditure" have not been defined in .....

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n previous cases, such as that "capital expenditure is a thing that is going to be spent once and for all, and income expenditure is a thing that is going to recur every year" from the decision of Lord Dunedin in Vallambrosa Rubber Co. v. Farmer [1910] S.C. 519, at p. 525 and, again, that income expenditure is "a proper debit item to be charged against incomings of the trade when computing the profits of it": per Lord Sumner in Usher's case [1915] A.C. 433; 6 Tax Cas. 399 .....

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ent proposed by Rowlatt, J., in Ounsworth v. Vickers, Ltd. [1915] 3 K.B. 267, at p. 273; 6 Tax Cas. 671, to the following effect:- "I take it, and indeed both sides agree, that no stress is there laid upon the words 'every year': the real rest is between expenditure which is made to meet a continuous demand, as opposed to an expenditure which is made once for all." There is a further test given in the judgment of Lord Atkinson, whether the expenditure could be regarded as formi .....

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Vallambrosa Rubber Company [1910] S.C. 519, at p. 525. The Tribunal has held that this interpretation was not correct. As a matter of fact, this interpretation was not possible on the terms of the document as the document provided for payment each year after deductions for each day beyond sixty days when the road was not passable. Great reliance is placed by Mr. Pathak, learned counsel for the assessee, on the decision in Ogden v. Medway Cinemas, Ltd. [1934] 18 Tax Cas. 691, where the respondent .....

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option for the purchase of the head lease of the premises and the goodwill for £ 3,500. The views of the Lord President in Commissioners of Inland Revenue v. Adam [1928] 14 Tax Cas. 34, at p. 41 were relied upon which were as follows:- "Suppose that the consideration for the right had been an annual rent of the site stipulated for as such, it would, I think, have been difficult to displace the view that the rent was a proper revenue charge. But (the contract taking the form it does) .....

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Nagpur [1949] 17 I.T.R. 473; 1949 W.N. 358, it was held that the contract only gave the assessee the right to go on the spot and collect the tendu leaves without giving him any right in the property and there was, therefore, no difference between buying the tendu leaves from a shop after they had been collected by some one else and getting a right to collect them from the forest on payment of the price. It was further held that the assessee had only bought raw materials for his trade and that t .....

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ears. In Racecourse Betting Control Board v. Wild [1938] 22 Tax Cas. 182, the owners of a racecourse had erected certain buildings for the purpose of operating a totalisator and had granted to the Racecourse Betting Control Board a licence to use those buildings in consideration of an yearly payment. This annual sum was declared to be not only for the enjoyment and exercise of the right of user but also in repayment by yearly instalments of the capital value of the cost of construction. It was h .....

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e of £ 75 fixed by the justices under the Licensing (Consolidation) Act, 1910 (10 Edw. 7 & 1 Geo. 5, c. 24), Section 14. The question was whether this was a capital expenditure. It was held that this was a capital payment and was not deductible. In a similar case of Henriksen v. Grafton Hotel Ltd. [1942] 2 K.B. 184; 11 I.T.R. Suppl 10, instalments paid by a tenant to the landlord towards the monopoly value fixed by the licensing justices were held to be capital payment by the Court of .....

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t case two retiring directors agreed on payment of a large sum of money not to carry on a rival business. It was held by the Court of Appeal that by buying off two potential competitors the company had improved the value of their goodwill and had accordingly brought into existence an advantage for the enduring benefit of the trade. One of the tests mentioned by Lawrence, J., in the case of Southern v. Borax Consolidated Ltd. [1940] 4 All E.R. 412, at p. 418; 10 I.T.R. Suppl. 1 was quoted:- " .....

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eli Ram [1945] 13 I.T.R. 157 and In re Benarsidas Jagannath###. In the case of Benarsidas Jagannath [1947] 15 I.T.R. 185, the assessee, who was a manufacturer of bricks, had obtained certain lands on leases for the purpose of digging out earth. It was held that this was a revenue expenditure and must be interpreted to mean a purchase of raw material, earth, for the making of bricks, Mehr Chand Mahajan, J., laid down three propositions which were as follows:- "(1) Outlay is deemed to be capi .....

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y what was taken in as capital of the business. Again, it is to be seen whether the expenditure incurred was part of the fixed capital of the business or part of its circulating capital." In Commissioner of Income-tax, Madras v. Siddareddy Venkatasubba Reddy and Bros. [1949] 17 I.T.R. 15 the assessee had taken on lease certain mica mines for periods varying from five to nine years for winning mica and selling it in the market. The assessee claimed the deduction of the money paid to the less .....

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usts itself either during the course of the year when it was acquired or within a short period thereafter. The main test is its permanency, i.e., whether the value of the capital of the company or its asset or its goodwill is permanently increased by reason of such expenditure. It is impossible to lay down any test which would meet all cases. For example, a firm carrying on the business of plying motor vehicles for hire might decide to increase its business and lay down a new road connecting two .....

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