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1962 (4) TMI 112 - ALLAHABAD HIGH COURT

1962 (4) TMI 112 - ALLAHABAD HIGH COURT - [1963] 47 ITR 938 - Income-Tax Reference No. 24 of 1953 - Dated:- 13-4-1962 - Jagdish Sahai And S. C. Manchanda, JJ. For the Assessee : D. D. Seth For the Commissioner: Gopal Behari JUDGMENT Jagdish Sahai, J. At the instance of the assessee, Radha Kishan Kapoor (hereinafter referred to as the assessee), the following question of law has been submitted to us for our opinion: "Whether on the facts and in the circumstances of this case the Tribunal was .....

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, constitute a registered partnership firm styled as Messrs. Hari Chand Kapoor and sons. This firms carried on canteen and contract business in the India Army. A partition took place between the brothers and out of seventeen contracts that they had, each got eight. With regard to the remaining one, which was a canteen shop run under the style of Irwin Stadium, New Delhi, the military authorities gave the brothers option for either of them to run the business subject to his buying all the rights .....

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moon of 9th of September 1940. The military authorities approved of this arrangement. During the accounting period relevant to the assessment years 1946-47, this sum of ₹ 45,000 was paid by the assessee to his brother, Gauri Shanker Kapoor. The assessee claimed ₹ 45,000 as a business expenditure under section 10(2)(xv) of the Act. The Income-tax officer held this amount as an expense in the nature of capital, a finding with which the Appellate Assistant Commissioner and the Income-t .....

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e question therefore, is whether the amount of ₹ 45,000 was expended wholly and exclusively for the purpose of this business. In this connection is relevant to reproduce the provisions of section 10(2)(xv) of the Act. "10. (2) Such profits or gains shall be computed after making the following allowances, namely:........ (xv) any expenditure (not being in the nature of capital expenditure or personal expenses of the assessee) laid not or expended wholly and exclusively for the purpose .....

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stion of a free market and the business, is in the nature of a monopoly of the military department. Consequently any ideas of competition are foreign to the real nature of the business. We cannot, therefore, treat this payment of ₹ 45,000 to Gauri Shanker Kapoor as the amount paid to avoids competition. We are also unable to hold that his amount was paid by they assessee to buy the goodwill of Gauri Shanker Kapoor. The question of goodwill can arise only in connection with a business to ca .....

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e. No one could look forward to the prospects of earning profits as of right and as we have said above there was no free market. In the circumstances, we do not see how it can be said that the sum of ₹ 45,000 was paid buy over the good will of Gauri Shanker Kapoor. Ordinarily, "capital" means an assure which has an element of permanency about it and which is capable of being a source of income. Capital expenditure must, therefore, normally mean an acquisition of an asset of lasti .....

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Kapoor was by way of satisfaction of the claim of Gauri Shanker Kapoor to the profits in the business. It appears to us therefore that it was an expenditure of a non-recurring nature. Our attention was invited to B.W. Nobel v. Mitchell [1926] 11 Tax Cas. 372, 420, where the following was observed: "It is a payment made in the course of business, dealing with a particular difficulty which arise in the course of the year, and was made not in order to secure an actual assets to the company bu .....

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factory conduct. It is obvious such an expenditure would in the nature of an income expenditure. In In re Ramji Das Jaini & Co [1945] 13 I.T.R. 430, the Lahore High Court had to consider whether the payment made under the agreement arrived at by the partners in a business to the effect that partners Nos. 2 and 3 would get a certain sum of money every year for five years irrespective of the firm's trading result and the partner No. 1 would be the sole in-charge of the firms profits and lo .....

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tage of commission on various items. During the relevant accounting year the assessee who was one of the partners in the firm-a limited company-had purchased for his exclusive benefit the interest of another partner in the firm on payment of ₹ 1,14,000 and claimed that amount for deduction as revenue expenditure. The Madras High Court held that the payment being in the nature of capital expenditure for acquiring a profit yielding asset was not an allowable deduction. In City of London Cont .....

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iption given of what the business is. There is an endeavour to carry us so far as to go into the description of business, and to say that the ? 180,000 is not capital because of the description of the business, but if they bought the business, whatever it may be, and whatever it consisted of, the fact that it is the capital which they embarked in that business cannot be doubted. Now, if that was the capital which they embarked in that business, they then proceeded to carry on the business. How c .....

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the year in order to earn income which was to be received in the year, and the income so received, was ? 128,000. That is the net profit within the year, that is the sum upon which income-tax is to be paid; and it is as plain as plain can be that you cannot deduct from those net profits so arrived at any part of the capital which you so invested, whether you paid it or not for the purchase of the business which you were obliged to purchase before you could begin in the difference between expend .....

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