TMI Blog1987 (2) TMI 2X X X X Extracts X X X X X X X X Extracts X X X X ..... JEE. and S. NATARAJAN. JUDGMENT The judgment of the court was delivered by SABYASACHI MUKHARJI J .-This is an appeal from the judgment and order of the High Court of Allahabad dated November 25, 1971. The Income-tax Appellate Tribunal had referred to the High Court the following question for its opinion : Whether, on the facts and in the circumstances of the case, the expenditure of ₹ 50,000 was a capital expenditure which could not be allowed as a deduction under section 10(2)(xv) of the Indian Income-tax Act, 1922 ? The assessee carried on the business of manufacture and sale of woollen goods, cotton textiles and hides and leather products. The activity of tanning hides and manufacturing leather products wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s been discussed in various decisions. It is settled that the question must be viewed from the practical point of view. There is a deluge of cases and no principle can be laid down with substantial accuracy which will be applicable to all the cases. The answer to the question must depend on the facts and circumstances of each case and on the application of the principles of law as laid down by the courts. The agreement in question in this case between the assessee and Charles Walker stipulated that Charles Walker would permit the use by the assessee of a number of registered trade marks specified in the agreement and further disclose and make known to the approved officers of the assessee, the technique, practices and application of special ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cipant. Seven years was the period of the agreement as agreed. It is clear from paragraph 7 as aforesaid read in the background of the entire facts that the assessee was obliged to appoint Textile General Supplies, nominee of Charles Walker, as its distributors for the sale of industrial leather manufactured by it in India. The assessee was obliged by the aforesaid agreement to pay ₹ 50,000 to the distributors for meeting the initial expenses of establishing the distributorship. An agreement was entered into by the assessee with Textile General Supplies in which, after referring to the agreement with Charles Walker, it was stipulated that the distributors would receive a discount of 15% of the sale price fixed by the as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the trader under the contract in question a mere division of profits with another party or is it a payment to the other party, the amount of which is ascertained by reference to the profits ? The Lord justice observed that it was a difficult question. In that case, the Lord justice held that the payment was made to earn profit. It was condition precedent to the acquisition of the know-how that the payment had to be made for installation of the set-up of the distribution arrangement. Rowlatt J., in the case of Countess Warwick Steamship Co. Ltd. v. Ogg [1924] 2 KB 292 at 298, observed that it is very difficult to lay down any general rule which is both sufficiently accurate and sufficiently exhaustive to cover all or even a great number o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee to obtain the know-how. It is clear that pursuant to paragraph 7, the assessee was bound to appoint Textile and General Supplies, nominee of Charles Walker, as its distributor for the sale of leather manufactured by it in India. Contemporaneously, an agreement was entered into by the assessee with Textile General Supplies in which after referring to the agreement with Charles Walker, it was stipulated that the distributors would receive a discount of 15% of the sale price fixed by the assessee and that the agreement would extend for period of seven years. Significantly, no reference was made to the obligation of the assessee to pay ₹ 50,000 to the distributors, a condition which was in the agreement with Charles Walker alone. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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