Commissioner Of Income-Tax, U.p., Lucknow v. British India Corpn. Ltd., Kanpur

aaasaaaasaaaaaaaaaaaaaaaaaaaacaaaaaasaaaaaaaamasaiiisia 180 seaan canara faoiaafaet [1987] 3 sao fro Go Wt Fa STF 18,000 ere & ata @l AIVAT:| afaatart t sa aa aul ¥ eq at § wraar sarat g gafaq-ga ray at art Feat wear gaa mel start15. a4 Fart Hag anda| al ater atta arma: Fat at TE | Fo [sito [1987]3 sao Froqo 180MART AIT, TAT NIT, AAAT qaTy fafen gfear areditaa, stage :3 Ba, 1987 |raTaAla aeaatal Aasae Ao AeUIHA Sfsar geen seq Caz,-1922—enet 10(2)(4 5)\—etaieq ea — anataQTMARTY HTT HT BT oa—fadsitiaiaewr faeifeat-er avatar MAR.24 AERA Met aan saw eiregT care fas st see A Ta | fae TARTweal and fe faatfeal 7 ag & fa sae seotal & faaen & fag fire faarywat a farger Ht ear faaore a canted wea & areas aa S fay faazamY 50,000 eau aaa mt—afes ag cag sit cag @ AAT TsAeT yy ag fretAIA F TAY H sere az gar saeh atefeafaal & fafifera Fear sar é, aa:nega ate # fraifeat are wees aan F fara st feat nat 50,000 aayST AY WATT SAA AT WITT |a aeag Ae Fatsars Ser eaTTTAT H aTMS-25 aMaT, 1971 ay * fava%aan % fees st we 8 mat aia afaaco F SET ATATAT Hl WT AA fag aa freafafad ser facta frar—aar-aray & geal Barge ae alksaat afefeafaat ¥ 50,000 sag ar saa Var Tail-eay ar fae -gemy aq daz,1922 at are 10(2)(15) % aeta wetet F we F agara val feat ar amar?Fratfeal oat ara, get aea aar ate atx was B carel ® fafaator at< faaTl PILATE HAT At| arayl BY Hay att angst geqral ar fafaatoy ae arPeareerra BAT, Vea Us are Fee Beard at mrarall & ara ate afeara J saraHa aTgeHy tay tees ata fate af 1959-60 ® faq frat yaaawTarag 31 fedaz, 1958 mt aaa aa ara wast as at, faaifedt & dagEFReTET US TAL AraTgaT Tae fafees, dak st dea 50,000 RIT HY Beta at erat fear1 fretted ar arar ga. arere oz fear aan ar fa fraifed) dadaed WHT Cs HI, HeTH arg gy HUE ¥ ahha gz cH anarza Us FATAacaren HY se fretted) F searat F faaea-B wa F carfra wed F facaréfrsoma at gtr wer ay afeegaat wea H faq maz a1 aaa afar aaay TAAL KT fear ate ages argaa (adta).a ga-fafavag at way cer|faatfeal + arraat athe afgatr & amet adte aly afaxy 3 et fraifreal arerat aTATT HT fear| fratfeal & agra at afesey A gaat me aTrararaa at ca fader fear met ag & fa aot fratfedt aay arzart & oral ate afsaral at ganarH quate saa at aaa etal wer arar Hey al sHare Ba fix CH Hart FTNA GHA: IAT gAPTT: Sag at ora faa aq gst saa gt gaa aT vet@| Sea raTaaT Tag wa al fH guava cay Uses ea AAT HUT) Bqararay % fara % fag atta geaan camarax at ag, ata aha eo afafaatfza—auz at safe att ga acai at sara FY waa eu fe faazn-argaaa HUT FH Hata Msarers sar ara as aw waar gr ate ca srarafiqat anifer ot faatfedd at dasa & ara alg daa adt xearar alte ae fafaraifedd atte farcat & aba gu were al ararafar faaifead atz UH ay safaq& fla gq wuz at areas F anarafas at frat ata fratfedt vsetaasITaTe fae BT GIANT HW HI FHAr ST var ar, et aaxg glUses era AAATSTAT AAT | ETT ATA F Teay F arareqe-ale saat afefeahaat H aw usegaaa g Fife age aHatal aaagrt alt F asieat at Alaa wr ara gr ate fagfaaa ma ay oufed are sfeafad agave ar(421 15) FAT ARAMA ETT UAT GAT ST AyAT Ts aa, eA NV aL saRlRTaqraaitea afte & fear srat arfge i ®t araai at dear afva & fag. WaTaargar % ara tar are fagia afeafaa aét fear ar aear a ast aaa. BYANT SlSA AM BT SAT seat args F aeal F arare gz ate gaat of fea fartH eararerat aren afaataa fafa % frata % ay a oe fate war | (Fer 5)fatzce facia [1981] [1981] 3 gH fo To 58 (1980) 125 afo ato7GaoTo so 293: Tat Geett cs-anam; faca (sto) fafads (sto) fafads fafads aarz 7 faca (sto) fafads (sto) fafads fafads aarz MART AA, FAC TIT;|11 [1981][1981]2 Bao froqo 881=(1980) 124 argo. ao Aeve -yeqtaz se sige fafaes aara aaee araaa; 4. faaifedt sat are, gat vet ger are ae TAG % searal & fafaater COMMISSIONER OF INCOME-TAX, U.P., LUCKNOW. v. BRITISH INDIA CORPN. LTD., KANPUR. FEBRUARY 3, 1987 [SABYASACHI MUKHARJI AND S. NATARAJAN, JJ.] Income Tax Act, 1922-s.10(2)(XV)-Assessee Company-Entering into agreement with another company appointing its nominee as distributors of assessee's products-In lieu of benefit of technical knowledge assessee paid to the distributors for meeting initial expenses of C establishment of distributorship-Assessee claiming deduction-Payment whether capital expenditure or revenue expenditure. The assessee-company entered into an agreement with M/s. Charles Walker and Company, London which, inter alia, stipnlated that the latter wonld permit the nse by the assessee of a number of D registered trade marks specified in the agreement and disclose to the approved officers of the assessee the technique, practices and applica- · tion of specialised tanning processes. Paragraph 7 of the agreement provided that the assessee wonld appoint Textile and General Supplies, nominee of the Charles Walker, as its distributors for the sale of indus-trial leather manufactured by it in India and the assessee would pay E Rs.50,000 to the distributors for meeting the initial expenses of establishing the distributorship. This agreement was to be in force for a period of seven years. Simultaneously, another agreement was entered into between the assessee and Textile and General Supplies for a period of seven years, bnt no reference was made therein to the obligation of the assessee to pay Rs.50,000 to the distributors. F For the assessment year 1959-60 the assessee claimed the payment of Rs.50,000 to Textile and General Supplies as a deduction permissible nnder s.10(2)(XV) of the Income Tax Act, 1922, which was rejected by the Income Tax Officer, Appellate Assistant Commissioner and the Tribnnal on the ground that the said payment was in the nature of a G capital expenditure. In the Reference, the High Court allowed the claim of the assessee holding that the payment in question was a revenue exenditure. Dismissing the Appeal of the Revenue, SUPREME COURT REPORTS HELD: 1. The real question is whether the payment that had been made by the assessee under the contract in question is a mere division of profits with another party or is it a payment to the other party, the amount of which is ascer1tained by reference to the profits. [138A-B] 2; No test of Universal application can be laid down. The aim and B object of the expenditure was one of the guiding factors. The aim and object of incurring the expenditure in this case was the acquisition of the know-bow. Rs.50,000 was really part of the price paid by the asses-see to obtain the know-how. Pursuant to Paragraph 7 of the said agree-ment the assessee was bound to appoint Textile and General Supplies, nominee of Charles Walkeir, as its distributor for the sale of leather C manufactured by it in India. Paragraph 7 was an integral part of the agreement with Charles WaJker and was a part of the consideration for the receipt of the benefit. It was necessary condition of the agreement with Charles Walker to appoint Textile and General Supplies as dis-tributors of the assessee. It was perhaps done to protect the technical know-how which Charles Walker was parting so that the distributors D would be a nominee of Charles Walker. [1380; H; l39C-D] Aeve ac fame BT BTCA HLA A STAT BY HATA AT AST seqrat at fafaatotmea aTPRATHATT AY, ToT Tz ard Gee Sere) at areata Fara ale aT& aarar sar ar | gene Zea dae B acta rater aH 1959-60 & fare freerava Har ae 31 fadaz, 1958 Fi AAT aly aver wast aE at, Fratfedt 4faa daazrga Us wae ares mete fafaes, aoe (fae gah gay WANTodqaarga de wats waten” & er F fafase fear Tar[2)][ Ht][ Aa][ 50,000][ Ig]at mata ar atat Prats fratfedd ar stat ga ATAIT Te frat tat at feraifedt dad ated ane ces BIA, cet F AMT FT PUK Re adla Te THASaqSTEa US AACA TART HY TA faatfeat & gearal ¥ faata F ea F carfaawea & fare arene one at gfa wer at gfe B dee we H faq aaaaraat afaare & ara aTige FT feat alt wean aryad (atta) Fafafaraa_ aljetan, car| fraifeat + araHz atta afeancor & amet arte aTafaarco tat faatfeat ar arar aiae we feat faatfedlagua Iafanet F qalad TET IT Gea eaTATAT aT OF fram fear)4. wet ae 2 Paar Pratfedd aay arzare BH aay aA afaaral agaat F TMATT oa Hl AraeaT Hate HT sTAT BLA a} gHart &, a fa 08BITATETATUNG VHT: ATA TATA: SITT AT Aa fire ag gait eam at THhagr vat & 1 gat wedl H, ga aTae HH faarener aeat at qesyfaHf Fat 4g--gaeq eae at aaa FsHl-2aT | 5, ga maa ot fafaes feral F faarcfanst feat var 21 ag fafeaa @ fa cq qat HT aaeilne caTaerfes sfeealT a feat sat ated 1 8S araat adeat afan § fag areary asa F as var arg facia afestaa aat feataT AHA TY AMY AAT HT ATT Bl | AT AeA FT FAT gata ata FB aval %arert TE ae Saat ofefeafadt H eararaal ae afastea fafa % faata % a7,gia ve fade wt | ga ATA H faatfeal ate aid stat FH AeT BT TANTaut tag aqafat at fis ated ara Fratfeat al wuz aH fafatase we xftegl-gq sarare Pargl at stata HA atte GAS afafiaa wart at fafarse gfenarattaqalaat at anata att cafaat Bt re HLT Ta faatfedt % aquifer afa-aifeat a saat araare aa % fare agara ata | HUTA AeA AHL ATTamare THAT TAT GAH TIT ATT HAS TT afaal Bt aaAH, AAT-CIT areACT-TNIN Fl STTTAT FT gaan Heaafafeaa yg widfaa at fe aaa tsarckewem ah sar H ated HLATA BATA gearat at fasta wrea aa aifaacant 1 fratfedt % ate are a1 a sated afaaralt & are seatfea seaTalak fara aaa % 5 sfama a ex a quina antlal Gla dae HWA BT ATTfran1 BUT aT ae 7 FaeaTHTE 2: cary MA arat gaa sala (Faatfeat) ara aa, ate qea outed (ared aret) % arafraiandh caaerga ds wae acerge mTgae fafars,amet ds Aal fafesa, wgrear vist Os, qeag-1, area, st ge Hue atararafa % fry tet aladtoz, fort at ga wut aR aaa aeatafre aag ar fear arer faal ate aa goalaatatat fear strar@, 15 sfama (vag fama) Saeed cea AA ae gar aafeae gratarea # fafafne atetfins aag wr far wey & fry arr A ae garafer & fraery fargar wut wt wut Har By gaharea; araaq arat gau eafea ga afwerta te & ay faazataT ATTaa are gat afar & faato ara at carta & fag arePae ona at gfe% fre 50,000 8(Tata eae BIC) Aaa Har,fe a Fr-ararvay safer wit at are gat cafes % fafa gatquier’faar faqalam US Ate acarey srgde fafats F aq® fea & fear aatierrr”| 6. HUT a ereatraty, tat Pe aa as ae, ara ae a 7. area aeat al qsoyty F aer-gaiza de 7 & ag ease ¥ fe frathedtert ger arta F fafafaa atenfte sas ar fasa at % few aed are}avinfadtadt danza Us sate acHey A aca fas Fagan:axa fireasa atfaaiftat gaita sue are faawn ait: a} eqraar: wade}artfan era at gia & fare faazat Ft 50,000.00 cawded set % fae aryay|| 3. Having regard to lthe nature of the agreement and having re-gard to ahe facts that the organisational set up under the distributorship agreement was to endure for seven years and upon the expiry of the period, the assessee had no relationship with the orgaisation and that E the period of agreement between the assessee and the distributors was contemporaneous with the agreement between the assessee and Charles Walker under which the assessee became entitled to use the registered trade marks, it must be c9nsidered to be a revenue expenditure, be· . cause it. was part of the price for the acquisition of technical know-how and the condition of appointment , was a stipulation mentioned by Charles Walker. [1390-F] British Sugar Manufacturers, Ltd. v. Harris (Inspector of Taxes), 7 I.T.R. 101; Countess Warwick Steampship Co. Ltd. v. Ogg, [1924] 2 K.B. 292 at 298; Assam Bengal Cement Co. Ltd. v. Commissioner of Income-Tax, West Bengal, 27 I. T.R. 34; Commissioner of Income-Tax, Bombay City Iv. Ciba of India Ltd., (and vice versa), 69 I.T.R. 692; Travancore Sugar and Chemicals Ltd. v. Commissioner of Income-Tax, Kera/a, 62 I.T.R. 566; Commissioner of Income-Tax, West Bengal II v. Coal Shipments P. Ltd., 82 I.T.R. 902; Empire Jute Co. Ltd. v. Commissioner of Income-Tax, U4 I.T.R. l;'L.H. Sugar Factory and Oil Mills (P) Ltd., v. Commissioner of Income-Tax, U.P., US I.T.R. 293 and Commentry of Kanga and Palkhivala's Income Tax, Seventh Edition, Volume 1page484 to 488, referred to. COMM. OF L TAX v. BRITISH INDIA CORPN. [MUKHARJ!, J.l 135 CIVIL APPELLATE JURISDICTION: Civil Appeal No. 1163 A (NT) of 1974. From the Judgment and Order dated 25.11.1971 of the Allahabad High Court in Income Tax Reference No. 310 of 1968 S. C. Manchanda, M.N. Tandon and Miss A. Subhashini for the B Appellant. B. P. Singh and Ranjit Kumar for the Respondent. The Judgment of the Court was delivered by SABY ASA CHI MUKHARJI, J. This is an appeal from the judg-ment and order of the High Court of Allahabad dated 25th November, 1971. The Income-Tax Appellate Tribunal had referred to the High D Court the following question for its opinion: "Whether, on the facts and in the circumstances of the case, the expenditure of Rs.50,000 was a capital expendi-ture which could not be allowed as a deduction under sec-tion 10(2)(xv) of the Income-tax Act, 1922?" The assessee carried on the business of manufacture and sale of woolen goods, cotton textiles and hides and leather products. The activity of tanning hides and manufacturing leather products was carried on under the name and style of Cooper Allen and North West Tannery branches. For the assessment year 1959-60, under the F Income-tax Act, the relevant accounting of which being the calender year ending on 31st December, 1958, the assessee had claimed a deduction of Rs.50,000 paid to Messrs Textile & General Supplies Private Ltd. Bombay (hereinafter referred to as "Textile & General Supplies"). The assessee's claim was made on the basis that the asses-see was bound under an agreement with Messrs Charles Walker & G Co., London to pay that amount to Textile General Supplies for meet-ing the initial expenditure for establishing it as distributor of the asses-see's products. The Income-tax Officer rejected the claim, and the Appellate Assistant Commissionerupheld that decision. The assessee went up in appeal before the Income-tax Appellate Tribunal. The Tribunal also rejected the claim of the assessee. At the instance of the H A assessee, the Tribunal made a reference on the aforesaid question to the High Court. The question is whether the assessee was entitled to claim deduc-tion in the computation of its profits and gains of business in respect of the expenditure in question, not being in the nature of capital expendi-B ture, laid ont or expended wholly or exclusively for the purpose of such business. In other words, on the background of the facts in con-troversy in this case whether it was revenue expenditure or capital · expenditure. «8. fratfedt are daaerga Us sate aay Baret da HUT fearfearrar at frat ared araeare gy Hee & she fade Het & aoaae aay war at fe faawe faaifeat are faaa fasa stag ax 15’ sfama ar aayfratfedtTet HU aayfe HUCaTTag H Haagara|aeayoh ata ag 2 fs aren faacal t 50,000.00 ery & dara Hea at ateqay % ofa atsait face at fear var aife tet ad g freer sete Fae ard ara % argey Sut A ar faazat at 50,000 ere Hr dara Hwa a areqart vagal Fa aw at fare seria wea ge fratfedd <faettaa eqrarz faz at sqataHUT BT A aaelat theafest F cHeTt ae aed arHr grep sera fire azfatetea ceencal Hr orale Hey at sHATeaE 1 der 7 A xaface fryea dafaa ae Gs wut ar afameg aa,afst wear ar ate HUT R ada aresarét & araal at oiftar ar ofan ar9. Sagara St gata aaa srer eet & fae an wd ag i fasaat aafratndl farce & wo F fagaa Pear war =efeu ale fata ® srearzal eatfaa awafre ag adfiaa or fe tara gare eae az fag arg1 agea fafese faaea at frgaa azar, arate AAS F arty F fre wears grarea: afar HT aT Ue10. Sa met at aaa fafroaay F franc feat ay Tat &t faferPages fafete garq ghee (gedaee ara dada) ary arqy ¥ gisal até are attaYea sea qe fears fear ate. ae afeea. Vaz F fedsTSS 108 It sa se I, Whe mega se R aHEq at, faare avs gu agHa eae fear fs areafan set ag @ fe aar guava afaer ® ata sqTqTataren fear ort ara’ ware gat ga Bara ara ara ai farsa @ at aT agaa gat ay fear war dara & fraat cay areal % Sofa fade awk afatafesaat od1 wis earagfa A ze nafaeafsa at fe ae um afsa goa @1 3awae # are earaafa 3 ae afafraifea fear fe qT Aaa aI sofsa HFferu frat mar ar aalat aa ® asta % far Ta Md ae a fe daz’ razasaaer % are & carga % fry Pear ara ar angza_ arefaw ectafera Sortfafaes sary atin? are Aram F after dae Fag aa afaeraa fear fe wg tararared fran afaafar azar ada afore at ad azar ate daha araaiat amface eet % faq gata we & afega a att qt ere aah ayaan amie atte weet fafades sara areaz raed, aadt dare? ae greaFga raratag & tal at ao salfeat afaafag ata. ga amar > Ras ®GS 45 7 Hie-me fagial at aat at) gt ae fagial at gruafa aragaavel @ fag gat a om walet ag ot fe cae ar aer atx eua anata TatHATH aT ea aA Haga yong - wey ST aed aK Sea THAN TTA srATT BAT AT| gfear11. 3a FaraTaa 4 Ga: aeee aaa, Arad antl gatq ata ngalafafages (att dar ars gisar fefats aansas waa, Ara Tz) Tae A ag aaeifea wt & fre fe aot ea gfefeafaay 8 aay sit aTuseq al Tafa BTS, aT Va ary fagial ae rare fear | TAARIT TTT TTafasca fafage sarg aaa anaaa, aea®, masz ataadt, afsadt anre-llaqara ale firaizea sto fafate’, at yeqtaz we aaal fafate sara araezaraea’ art ara at fag) ga carat 4% Ha eae PRT fe Prarz fe oy& fay at aa arfeas &, ag arfafsan at ¥ anfer at afasrear wt at rateAlt SAB ATT YT | Tao Fo TIT SIT TS saa face (sto) fafats garyATRL MART, FAT TAA ata yraT st far| .2 (1924) 2 Ho ato 292.298,3 (1957) 27 AIZo ato AITo 34, (1957) 27 AIZo ato AITo 34, 27 AIZo ato AITo 34, AIZo ato AITo 34, ato AITo 34, AITo 34, 34,~* [1968] 1 340 Fro Go [1968] 1 340 Fro Go 1 340 Fro Go 340 Fro Go Fro Go Go 247=(1968) 69 ATko So ar 692.5 (1966) 62ago eo aIXo (1966) 62ago eo aIXo 62ago eo aIXoago eo aIXo eo aIXo aIXo 566,® [1972] 1 aHo fre To Fite [1972] 1 aHo fre To Fite 1 aHo fre To Fite aHo fre To Fite fre To Fite To Fite Fite Ato $4—=(1971) 82 ako eto arxo.7 [1981] 2 THe fo To [1981] 2 THe fo To 2 THe fo To THe fo To fo To To 831=(1980) 124 BIso Fo Ato 4.* [1981] 3 340 fro Fo [1981] 3 340 fro Fo 3 340 fro Fo 340 fro Fo fro Fo Fo 587=(1980) 125 Argo Ato ates 293,. 1(1939)7ATRo Eto UIT 101. 3 (1957) 27 AIZo ato AITo 34, (1957) 27 AIZo ato AITo 34, 27 AIZo ato AITo 34, AIZo ato AITo 34, ato AITo 34, AITo 34, 34, * [1968] 1 340 Fro Go [1968] 1 340 Fro Go 1 340 Fro Go 340 Fro Go Fro Go Go 247=(1968) 69 ATko So ar 692. This question has been discussed in the various decisions. It is C settled that the question must be viewed from the practical point of view. There are deluge of cases and no principle can be laid out with substantial accnracy which will be applicable in all the cases. The answer to the question must depend on the facts' and circumstances of each case on the application of the principles of law as laid down by the courts. The agreement in question in this case between the assessee D with 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 specialised tanning processes. Besides providing for the provision of technical supervision by Charles Walker and payment by way of E salary, travelling expenses and maintenance to the personnel sent out by it to India, the agreement also provided that in the event of liberali-sation of imports Charles Walker would limit its export to India of certain products. The asses.see undertook to pay to Charles Walker technical fees calculated at 5% on the selling price of the products by the processes disclose to it. Paragraph 7 of the agreement was to the F following offect: "The Second participant (the assessee) agrees to appoint Textile and General Supplies Private Ltd., Army and Navy Buildings, Mahatma Gandhi Road, Bombay-1, India a nominee of the.first participant (Charles Walker) as dis-G tributors 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 con-sumers. In addition the second participant will pay H Rs.50,000 (Rs. fifty thousand only\ to the distributors for COMM. OF I. TAX v. BRITISH INDIA CORPN. [MUKHARJI, J.] 137 meeting the initial expenses of establishing the distribu!o-ship of the second participant on the express under-standing that the first participant will not part with his in-. terest in Textile & General Supplies Private Ltd. without the prior approval in writing of the second participant." 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 Rs.50,000 to the distributorship. • 5 (1966) 62ago eo aIXo (1966) 62ago eo aIXo 62ago eo aIXoago eo aIXo eo aIXo aIXo 566,| ® [1972] 1 aHo fre To Fite [1972] 1 aHo fre To Fite 1 aHo fre To Fite aHo fre To Fite fre To Fite To Fite Fite Ato $4—=(1971) 82 ako eto arxo. 907, 7 [1981] 2 THe fo To [1981] 2 THe fo To 2 THe fo To THe fo To fo To To 831=(1980) 124 BIso Fo Ato 4. * [1981] 3 340 fro Fo [1981] 3 340 fro Fo 3 340 fro Fo 340 fro Fo fro Fo Fo 587=(1980) 125 Argo Ato ates 293, 12.3 fagta wded are sit Ge TATA FHA Zqq, aTaal AEH,ae 1, 755 484 8 488 F afaca eT # fac me 21 fag fafase araat 4 aaara a¢ ate feat var 2 fs ardvifas we arg at arat arg Halal afaafadmet at oT THAT | 13. adata atte F gore Te et aT fafreay srtaa fagial ay cata % ugar fear war arfeg1 age eSfe 50,000 waa at ufa areaa 4Fretted ater aeAlay ata afersted HAF fac daa slat Ht ATT al 1 Aeeqe 3 fir fautfedt der 7% aqaey A aed arntara-fadfadl caserade aA AATST BY ATT GIT! ATT i fafafaa ang ar faa wer % fagaqat farce fagad we F fog aaa aT I anaratan eT 8, faatfeat artSqaarga US AACA TATA FH AAT FUT feat mar ar fart aed arate % aAge BUT H aha fata GIF WATT 7g aqaa fear war ar fa feats faatfeatarer fama Fama-arad TT 15 fama Br age IT att ate ae fe FUL AAag at wrarafa aH ATT| Ie ngeagt & fa faatat BY 50,000 BIg FT walaety dah fathead at atetat Fae A até fade vat feat) mar, Ht tel wegaifn aed aat F arg Br HUT F a ata at | 4g, ae ease @ fe ea gat qd fafase dur 7 aed THT F ATA GEwut at afaer ait aT ale gal at stfea & Faw ofan ar GH ATT AT t Tatarcol et gat ara aaa Tel s fata acd aTHt SaaTIaeT TS HATA ACHATat, faatfed) & faze % eta, fagfaa 1 mie 24% far shea gar i 3gaed atet% ars FE BUT Bl AAT wad ft tar wafaar wet AHL SeFae aT aT THAT TT BY ALT FATT HVA %, faw fear war at faae feared arse ar arafaatact gt farce gar| 15, HRT at waft AY cara H Tad ge ae GT aay at saat[H][ tat]gu far Paaco-ard eal HUT F aaa aastieny stat aT aT TH AAA aTa ca srarafa at amir oe faaifed) or adaor S ara wie ada metgat or att ag fa faratfedt atx faazat % dha gy sue st saatFeaifedY alt ated arate ata ge sa ut at Barats % aaara fandt faa®seta fasifedtxfaediga amare Prest saala RUBTgHaTe el Tat ar, EH aw gl UAT AT TART TAT aifecs waea frara aterga aed gt cata aa fear mar gfe ated arate F ATT Ey FUE ¥ FU 7% ag sete frat aa ar fa faazat al arthan era al gia & faq 50,000aq daa faq wet) gare wa 7e a fe ary & aeal & arare gt azsaat afefeafaal F ag uses ora g Taf 7g apatar eqagit att B asta atataa ar arn at att fagfer at at ared arnt are sfeatad azaaT alt setHy, gard ag wa @ fae goa eaaTaT A at aa ATATAT AT, ag sta aT | 16. ta: atta Ta seat & ae aaqare at afar artes at ae ZI atta ares st 7S 1 Flo /ito [1987] 3 gHe fro To 187 maa ae slay (AAT), AQT (TAZ saat) TATA fawa-et AIA, SAT AIT ste TH Hea 3 Brad, 1987 mato Fo Uo AHECTAATse THe FRo TA SAL Haat fast-ae afafaan, 1948 (1948 wr 15)—eer 21—frater arta at arca—afeatarara—qa-frater sea F are Frater afirardtgit waa aT LS acta Frater aa—gafrater area st aitgia wtanaan—afe Frater weferetet A gaae Arter aT Tee 21 & sella erdentgat& ata doffrater aaa B ere aca faa a, safeg oegia&BAe St TAATETA ATT 21H elt ores ara et areaaH FAT TATatiey 1| An agreement was entered into by the assessee with Textile & General Supplies in which after referring to the agreement with Charles Walkar 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 the peiod of seven years. Significantly, no reference was made to the obligation of the assessee to pay Rs.50,000 to the distributors, a condition which was mentioned in the agreement with Charles Walker alone. The obligation to pay Rs.50,000 to the distributors was one of the conditions subject to which the assessee became entitled to the use of the registered trade marks and to the disclosure of the technical practices and application of the specialised processes to be supplied by Charles Walker. This clause regarding appointment contained in paragraph 7 formed part and integral part of the agreement and was a consideration for the receipt of the benefit from Charles Walker under the agreement. It was a condition to get the technical knowledge of the know-how that their nominee should be appointed as distributor and for the setting up of the distributor's business rupees fifty thousand was re-quired to be paid. This was in essence an integral part of the bargain for the acquisition of the technical knowledge to have this particular distributor. Numerous decisions have dealt with this question. In British Sugar Manufacturers, Ltd. v. Harris (Inspector of Taxes), 71. T.R. 101 the Court of Appeal in England dealt with this question and Romer, L.J. at page 108 of the report observed in dealing with the question which was similar to the present one that the real question is, is the H 138 [1987] 2 S.C.R. A payment that has to be ·made by the trader under the contract in question a mere division of profits with another party or it is 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 the profit. It was condition precedent to the acquisition of the know-B 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 Steampship Co. Ltd. v. Ogg, [1924i 2 K.B. 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 of possible cases. Only broad tests could be laid C down. Some of such tests were laid down by this Court in Assam Bengal Cement Co. Ltd. 1'. Commissioner of Income-Tax, West Bengal, 27 I.T.R. 34. This Court discussed the broad principles at page 45 of the report. It is not necessary to reiterate all these principles but one of the tests was that the aim and object of the expenditure was one of the guiding factors. The aim and object of incurring the expenditure D in this case was the acquisition of the know-how. Vasu GuptaAdvocate TATA ay 1975-76 & fay ata F Ha aad Ht stat fawa-we afaarey> afafian & ata 7 watt, 1979 a feat aaa cia fear | TATg waaay, 1980 a fana-at afaard & afafraa st are 21 & aeter Tareratat gaa art HH wat Frater ad aaty 1975-76 Bt sar FH AMAT Iqafrater HVT HT TAT TAT fH AST THT TAT aga [ Ha][ araa][ F][ anfaer]at ortt aifae ot, frateor F anfaa aet at or aa, ate aritenet B