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TMI Blog1971 (11) TMI 36X X X X Extracts X X X X X X X X Extracts X X X X ..... tton textiles and hides and leather products. The activity of tanning hides and manufacturing leather products is carried on under the name and style of Cooper Allen and North West Tannery branches. For the assessment year 1959-60 (the relevant accounting year being the calendar year ending December 31, 1958), the assessee claimed a deduction of Rs. 50,000 paid to Messrs. Textile & General Supplies Private Ltd., Bombay, to whom we shall refer as " Textile & General Supplies ". The claim was made on the basis that the assessee was bound under an agreement with Messrs. Charles Walker & Co., London (referred to hereafter as " Charles Walker "), to pay that amount to Textile General Supplies for meeting the initial expenses of establishing it a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... graph 7 of the agreement : " The second participant (the assessee) agrees to appoint Textile and General Supplies Private Ltd., Army and Navy Building, Mahatma Gandhi Road, Bombay-1, India, a nominee of the first participant (Charles Walker) as distributors of the second participant for the sale of industrial leather manufactured by the second participant in India for the period of this agreement at a discount of 15% (fifteen per cent.) on the prices at which industrial leather covered by this agreement are sold to textile mills and other consumers. In addition the second participant will pay Rs. 50,000 (Rs. fifty thousand only) to the distributors for meeting the initial expenses of establishing the distributorship of the second participa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s Walker and was as much a consideration for the receipt of the benefits from Charless Walker under the agreement as any other condition contained in the agreement. It will be noticed that paragraph 8 describes Textile & General Supplies as a nominee of Charler Walker. There is nothing on the record to show what were the reasons which persuaded Charles Walker to insist upon the appointment of Textile & General Supplies as distributors of the assessee. But, we have no doubt whatever that paragraph 7 constituted an important part of the agreement between the assessee and Charles Walker. We have already pointed out that no reference was made in the agreement with the distributors to the payment of Rs. 50,000 to them. It seems quite clear that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... experience was held to be a revenue expenditure. Romer L.J. observed : " The payment is a payment necessary for the purpose of enabling the company or the trader to earn the profits of its trade, and, therefore, it is a legitimate deduction from its profits when ascertained for the purpose of assessment under Schedule D. " The case was applied by the Patna High Court in Badridas Bansidhar v. Commissioner of Income-tax. Nothing has been shown to us to indicate that there has been any departure from the opinion expressed there. It has been urged on behalf of the revenue that by the appointment of distributors the assessee derived an enduring advantage for the benefit of its business and that, therefore, the expenditure claimed by the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s to be made for setting up the distributorship. That merely indicates the nature of the expenditure when the distributors made it. So far as the assessee is concerned, the payment was made because it was bound to make it as a condition of the agreement with Charles Walker under which it was entitled to the benefit of using the trade marks and technical know-how. In Motor Sales v. Commissioner of Income-tax this court held upon somewhat similar facts that the expenditure incurred by the assessee for the construction of a hostel by Messrs. Tata Engineering Locomotive Works Co. Ltd. for the training of apprentices sent out by the assessee was revenue expenditure. We are of opinion that the expenditure by the assessee of the amount of Rs. 50 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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