TMI Blog1984 (5) TMI 40X X X X Extracts X X X X X X X X Extracts X X X X ..... provided that the office, management, staff, electricity and other expenses for running the cinemas were to be borne by the assessee, but they would only get a (weekly) hire charge of Rs. 5,000. In return, the " playing time " was placed at the disposal of M/s. Khanna Financiers. That firm had to make a deposit of Rs. 25,000 with the assessee as security amount. The agreement ran for 41 weeks when it was cancelled by a subsequent agreement. By this agreement, the assessee had to pay a sum of Rs. 68,000 as damages for termination of the agreement and also had to pay back the security of M/s. Khanna Financiers. The reason for payment of the amount was explained by the assessee as being in order to take advantage of the " playing time " by the assessee himself which would lead to better return. The question before the ITO was whether the compensation of Rs. 68,000 constituted a revenue expenditure or a capital expenditure. The ITO held that it was a capital expenditure. On appeal to the AAC, that decision was upheld. On further appeal by the assessee to the Tribunal, it was held that all the cases cited by the parties had been decided on facts applicable to those cases and were no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he sum of Rs. 68,000. The contention is that the assessee was only getting a sum of Rs. 5,000 as hire charges during the first 41 weeks of the agreement and as a result of the payment of Rs. 68,000 and the return of the security deposit, it got back the right to run the cinema itself, and thus an asset of an enduring nature came to the assessee. It may be that the asset was only returned for 63 weeks, because in any case after that it had to be returned to the assessee, but still it is an asset of an enduring nature. The question for consideration is that the facts show that the assessee had taken these two cinemas in Lucknow at a monthly rent of Rs. 2,674 and Rs. 1,000 respectively making a total of Rs. 3,674 monthly. Assuming that there are four weeks in a month, the assessee was getting a sum of Rs. 20,000 under the agreement, but paying for the expenses of running the cinemas. This arrangement with M/s. Khanna Financiers was a business arrangement, assuring the return of Rs. 5,000 for the use of " playing time ". This type of an arrangement is not uncommon in the business of running cinemas. Normally, the " playing time " is hired out at varying rates dependent on the nature ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the true profit of the assessee-company during the remaining 63 weeks and, therefore, is an expenditure of revenue nature. It may be useful now to refer to the cases. Mr. Wazir Singh referred to Empire Jute Co. Ltd. v. CIT [1980] 124 ITR 1 (SC), on the submission that that was a parallel case. That was case in which loom hours of members of the Indian Jute Mills Association were restricted. The agreement also provided for the transfer of loom hours to others. A sum of Rs. 2,03,255 was claimed as revenue expenditure by the assessee for purchasing loom hours from four other mills. The High Court had held that this was an expenditure of an enduring nature, but the Supreme Court held it was a revenue expenditure. The argument of the Revenue in the case was that by purchasing loom hours the assessee had acquired a right to produce more, but the Supreme Court rejected this contention by holding as follows (p. 12) "But we fail to see how it can at all be said in the present case that the assessee acquired a source of profit or income when it purchased loom hours. The source of profit or income was the profit-making apparatus and this remained untouched and unaltered. There was no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nue nature but a capital expenditure. It is again a case of compensation which is treated as of a capital nature being compensation for termination of the managing agency. It is difficult to treat the present case on par because of the special facts involved. In CIT v. Ashok Leyland Ltd. [1972] 86 ITR 549 (SC), the question of compensation paid for termination of the managing agency was treated as being of a revenue nature. It thus would appear that this type of judgment of the Supreme Court turns on the special facts of each case. In Kettlewell Bullen and Co. Ltd. v. CIT [1964] 53 ITR 261 (SC), there was a voluntary relinquishment of a managing agency and a sum was paid for the same and the question arose whether the arrangement was trading transaction or whether the appellants had parted with an asset of an enduring value. It was held that the assessee had received compensation for the loss of a capital asset, and it was, therefore, not a revenue receipt. It is not useful to refer to more cases as the question in each case had necessarily to turn on the nature of the transaction. As analysed above, we are of the view that no asset of an enduring nature was acquired by the a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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