TMI Blog1993 (3) TMI 64X X X X Extracts X X X X X X X X Extracts X X X X ..... known as "Rajkot Jilla Milk Co-operative Union" and then as "Rajkot Jilla Gopalak Sahkari Sangh". In the year 1969, the assessee approached the Gujarat Government to hand over the milk conservation project which was till then run by the Government. As the said project was running into losses, the Government agreed to transfer the working of that project to the assessee temporarily on an experimental basis for a period of twelve months. A resolution to that effect was passed by the Government on July 31, 1969, and in the said resolution, the terms and conditions on which the said project was handed over to the assessee were set out. Broadly stated, the assessee was given a licence for a period of twelve months to run the said project on a nominal licence fee of Re. 1 per month. All the properties and assets of the project were to continue to be the properties and assets of the Government and though the assessee was permitted to add to the establishment the fixed and movable assets, a clear provision was made that no legal or financial liability was to devolve upon the Government in consequence of such additions. The assessee was to arrange for the working capital. The employees emp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... conditions of the leave and licence agreement. The Income-tax Officer disallowed that claim treating that payment as the application of its income by the assessee and rejecting the contention that as the said payment amounted to diversion of income by overriding title, that sum cannot be regarded as the real income of the assessee. In appeal, the Appellate Assistant Commissioner upheld that view. The Tribunal also confirmed that view and dismissed the assessee's second appeal. What is contended by learned counsel appearing for the assessee is that the Tribunal has not properly appreciated the true nature of payment of Rs. 78,273 to the Government and wrongly held that the said payment was by way of application of its income by the assessee. In support of his contentions, he drew our attention to various clauses of the terms and conditions on which the dairy project was handed over by the Government and also some decisions of High Courts. He emphasised the fact that only the management of the milk conservation project or dairy project was transferred by the Government to the assessee. Again, it was for a temporary period and on an experimental basis. The licence could have been term ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is required to be made some time after the close of an accounting year. It is pointed out that in examining any transaction and situation of this nature, the court would have more regard to the reality and speciality of the situation rather than the purely theoretical or doctrinaire aspect of it. It will lay greater emphasis on the business aspect of the matter viewed as a whole when that can be done without disregarding the statutory language. Again, an amount paid by reference to profit, as pointed out by the Supreme Court in CIT v. Travancore Sugars and Chemicals Ltd. [1973] 88 ITR 1, can either be that it is paid after the profits become divisible or distributable or that the amount is payable prior to such distribution or division to be computed by reference to notional or what, in some decisions, is termed as apparent net profits. In the former instance, it will be distribution of profits and not deductible as an expenditure incurred in running the business but in the latter, it may, on the facts and circumstances of the case, and the agreement or the nature of the obligation under the particular instrument which governs the obligation, be an expenditure incurred as a contr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ned. It is in this context that we have to construe clause 6 of the terms and conditions which reads as follows: "Profits and losses shall be worked out on the same basis as has been followed in respect of the dairy project so far, that is, in the two pro forma for maintaining trading accounts and profit and loss accounts, respectively, which are appended herewith. Profits, if any, as might be derived by the Sangh under this agreement shall first be applied to the accumulated losses of the project which, according to the accounts of the dairy project, stood at Rs. 64,670 as on March 31, 1968, and which, for the purpose of this agreement, would be computed at the figure as on the date of commencement of this agreement. Losses, if any, shall be borne by the Sangh." The profits and losses which are referred to in this clause are in respect of the milk project. In this context, the words "profits, if any, as may be derived by the Sangh" would mean profits made by running the milk project and cannot mean profits earned by the assessee, in the sense that the assessee was free to distribute or use the profits in the manner it liked. The said clause speaks of physical receipt of profit ..... X X X X Extracts X X X X X X X X Extracts X X X X
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