TMI Blog1978 (2) TMI 83X X X X Extracts X X X X X X X X Extracts X X X X ..... any utilised for several years the services of the said staff and was making payments to the Indian Company, on an agreed basis. The assessee, however, had sustained losses in the earlier years. During the year ending on 31st March, 1961, the turnover of the assessee was Rs. 58.63 lakhs and it had sustained a loss, as per its books, of Rs. 87,163. There were similar losses in the earlier years. It is not necessary to refer in detail to those losses. At the end of the relevant year the assessee had an unadjusted loss of Rs. 2,58,268 computed under the Income-tax Act. In the relevant accounting year, for a short period, M/s. Lyons (India) Pvt. Ltd. made available its staff towards the assessee's business. Lyons (India) Pvt. Ltd., however, discontinued their business in tea, It was stated that the company had not been wound up and was at the relevant time an existing company. The assessee severed its connection as regards the loan of staff with M/s. Lyons (India) Pvt. Ltd. After the Indian company had discontinued its business in tea, the assessee began to export tea to all persons including the London company. The Indian company retrenched some of their staff consequent on the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he same arrangement and considered it necessary in the interest of its business to terminate its arrangement with M/s. Lyons (India) Pvt. Ltd. As part of the arrangement for termination, in the view of the Tribunal, the expenditure was incurred. The Tribunal was further of the opinion that in finding out whether the expenditure was commercially expedient or not, one had to consider as to whether the expenditure was incurred as a trader and for carrying out its trade. The Tribunal held that the assessee was continuing its business and, therefore, the expenditure was not for closing down any business. From the materials before it the Tribunal could not find any motive other than commercial consideration in making the payment in question. The Tribunal pointed out that if the suggestion was that the assessee was trying to assist the Lyons (India) Pvt. Ltd. in seeing that it was not over-burdened with the expenditure of retrenchment, then the necessary materials should have been brought on record. Apart from the suggestions which were made out during the arguments, the Tribunal noted that there was no evidence to support the contention made before the Tribunal on behalf of the revenue t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essity but incurred voluntarily and for indirectly facilitating the carrying on of the trade or business will be allowable expenditure. This is well settled by the observations of Viscount Cave in the case of Atherton (H.M. Inspector of Taxes) v. British Insulated and Helsby Cables Ltd. [1925] 10 TC 155 (HL). It is also well settled that payment made to remove the possibility of a recurring disadvantage cannot be considered as a payment made to acquire an enduring advantage so as to be considered a capital expenditure. See in this connection, the observations of Mr. Justice Rowlatt in the case of B. W. Noble Ltd. v. Mitchell [1927] 11 TC 372 (CA), at page 413, and the observations of the Supreme Court in the case of Commissioner of Income-tax v. Ashok Leyland Ltd. [1972] 86 ITR 549, 554. In the instant case, it is apparent that the arrangement that the assessee had with Lyons (India) Pvt. Ltd., had proved to be disadvantageous to the assessee. The assessee was incurring losses. The assessee wanted to get rid of this arrangement and thereby get rid of this recurring disadvantage and as a result whereof to earn profits. Such an expenditure, in our opinion, cannot be considered to b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me Court held that the compensation paid for termination of the services of the managing agents in that case was payment made with a view to save business expenditure in the accounting period as well as a few subsequent years. It was not made for acquiring any enduring benefit or income-yielding asset. The Supreme Court observed that by avoiding certain business expenditure the company could not be said to have acquired enduring benefit or any income-yielding asset. The expenditure was of revenue nature and was allowable deduction in computing the profits of the assessee-company. There the assessee-company, which was originally importing and assembling motor cars, parts, etc., manufactured by Austin of England, had appointed C.B. Ltd., in 1948, as its managing agents for a period of 14 years. In 1952, the Government of India referred the question of establishing automobile industry in India to the Tariff Commission. The assessee-company submitted a comprehensive scheme for the manufacture of Leyland trucks and participated in the proceedings before the Commission. The Government instructed the assessee to take up the manufacture of Leyland commercial vehicles and, in 1954, the comp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rminate that managing agency and a release deed was executed by the managing agents on September 28, 1943, under which the appellant agreed to pay Rs. 2,50,000 as compensation for terminating the managing agency agreement. The question was whether the payment was allowable as business expenditure under section 10(2)(xv) of the Indian Income-tax Act, 1922. It was held by the Supreme Court, that the termination of the managing agency could not be said to be in terrorem but was voluntary so as to obtain an enduring or recurring benefit and payment of the compensation was not dictated by commercial expediency since there was absolutely no necessity to terminate the managing agency and the appellant wanted to benefit both the firms in which the Singhania family had major interest. Therefore, the compensation paid to an outgoing agent was capital expenditure and was not allowable as deduction under section 10(2)(xv). As we have mentioned before, there is a categorical finding in the instant case before us that there was, in the facts and circumstances of case, no motive to benefit the Lyons (India) Pvt. Ltd. The payment in question was not made to benefit any other company but was sharin ..... X X X X Extracts X X X X X X X X Extracts X X X X
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