Patto, Plaza, Panaji - Goa v. Mandovi Hotel Pvt. Ltd

1 IN THE HIGH COURT OF BOMBAY AT GOA INCOME TAX APPEAL NO.32 OF 2002. The Commissioner of Income Tax,Having office at Aayakar Bhavan, Patto, Plaza, Panaji - Goa. ..... Appellant V/S 1. Mandovi Hotel Pvt. Ltd., D.B. Marg, Panaji - Goa. 2. The Income Tax Appellate Tribunal Panaji Bench, Aayakar Bhavan, Patto Plaza, Panaji - Goa. ...... Respondents Mr. S. R. Rivankar, advocate for the appellant. None for the respondents. CORAM : R. M. LODHA & N. A. BRITTO, JJ. DATE : 30th August, 2005. ORAL JUDGMENT (Per R. M. LODHA, J.) This Appeal is at the instance of the Revenue and it raises the following substantial question of law :- "Whether on the facts and in the circumstances ofthe case, the amount of Rs.l,34,678/- paid by theAssessee to the retiring partners is in the natureof revenue expenditure or capital expenditure?" The aforesaid question arises in the facts and circumstances thatmay be briefly noticed by us : M/s. Apurva Enterprises was a partnership firm constitutedunder the instrument of Partnership Deed dated 12th July, 1982.The partnership firm had three partners, namely (i) NarcinvaPurxotoma Quenim; (ii) Smt. Crisnabai Vaman Quenim and (iii)Mandovi Hotels Private Limited. The partnership firm came intoeffect from 1st April, 1982 and was engaged in the business ofrunning hotels. Vide Memorandum of Understanding entered intobetween the parties on 6th August, 1990, the parties decided thatthe two partners, namely Narcinva Purxotoma Quenim and Smt.Crisnabai Vaman Quenim would disassociate from the partnershipfirm and the continuing partner Mandovi Hotels Private Limitedwould continue the business. The said Memorandum ofUnderstanding incorporated the mutually agreed terms andconditions. Thereafter the Dissolution Deed was executed on 4thSeptember, 1990 between the three partners. The partnersmutually decided to dissolve the partnership firm as from lstSeptember, 1990. It was also agreed between the partners that allassets and liabilities of the partnership business shall be taken over by the Mandovi Hotels Private Limited and the business shallcontinue to be carried on by the said partner. The DissolutionDeed incorporated the other terms agreed upon between theparties. For the Assessment Year 1994- 1995, the respondent no.1-Mandovi Hotels Private Limited (for short "the assessee") filed itsreturn of income declaring total income at Rs.28,945 /- after set offof unabsorbed depreciation of Rs.5,58,727 /- and deduction underSection 80 HHD of Rs.49,803 /- . The return was processed underSection 143(1)(a) of the Income Tax Act, 1961 (for short "the Act")and selected for scrutiny. The notice under Section 143(2) of theAct was issued. The assessee filed its reply. Since the Appealconcerns disallowance of expenditure of Rs.l,34,678 /- , suffice it tonotice that in the Assessment Order dated 29th March, 1996, theAssessing Officer disallowed an amount of Rs.l,34,678 /- beingcapital in nature and added the said amount to the income of theassessee. The income of Rs.l,34,678/- was the payment that waspaid by the assessee to the retiring partners in the relevantprevious year. The assessee aggrieved by the Assessment Orderdisallowing the expenditure of Rs.l,34,678 /- as capital in nature,preferred appeal before the Commissioner of Income Tax (Appeals). By his Order dated 24th April, 1998, the Commissioner of IncomeTax (Appeals) dismissed the appeal preferred by the assessee andmaintained the order of the Assessing Officer disallowing theexpenditure of Rs.l,34,678 /- being capital in nature. Aggrieved bythe concurrent orders passed by the Assessing Officer and theAppellate Authority, the assessee preferred appeal before theIncome Tax Appellate Tribunal. The Income Tax Appellate Tribunalallowed the appeal and held that the amount of Rs. l,34,678/- wasallowable as expenditure in revenue and not capital in nature.Upset by the judgment of the Income Tax Appellate Tribunalpassed on 31st October, 2001, the revenue has preferred thisappeal.2.As already noticed by us, initially by theMemorandum of Understanding dated 6th August, 1990, thepartners of the firm M/s Apurva Enterprises agreed that the twopartners Narcinva Purxotoma Quenim and Smt. Crisnabai VamanQuenim, shall disassociate from the partnership firm and MandoviHotels Private Limited ( the assessee ) shall continue the business.Subsequently, the Dissolution Deed was executed between thepartners on 4th September, 1990 whereby the partners decided to dissolve the partnership firm as from lst September, 1990. Theyalso agreed that all the assets and liabilities of the partnershipbusiness shall be taken over by the partner Mandovi Hotels PrivateLimited and the business shall continue to be carried on by thesaid partner on and from 1st September, 1990. Inter alia, theparties declared and agreed in the Dissolution Deed thus:- "All the liabilities as on the said date have alsobeen taken over by the continuing partner. ThePartnership business shall be continued solely bythe Third Part from the 1st day of September,1990, to the entire exclusion of the retiringpartners. In consideration of the above, the party of theThird Part hereby agree and undertake to pay theretiring Partners as Provided hereunder. The continuing partner shall pay to the retiringPartners annually a sum equivalent to 30% of thenet profits of the business, subject to a minimumamount of Rs.60,000 /- for a period of seven years,commencing from 1st day of September, 1990." 3.It was thus agreed upon between the partners that all theassets of the partnership business as on 31st August, 1990 wouldbe taken over by the continuing partner, i.e. the assessee and that In consideration of the above, the party of theThird Part hereby agree and undertake to pay theretiring Partners as Provided hereunder. The continuing partner shall pay to the retiringPartners annually a sum equivalent to 30% of thenet profits of the business, subject to a minimumamount of Rs.60,000 /- for a period of seven years,commencing from 1st day of September, 1990." 3.It was thus agreed upon between the partners that all theassets of the partnership business as on 31st August, 1990 wouldbe taken over by the continuing partner, i.e. the assessee and that the partnership business would be continued solely by theassessee from 1st September, 1990. The assessee agreed andundertook to pay to the retiring partners annually a sumequivalent to 30% of the net profits of the business subject to aminimum amount of Rs.60,000 /- for a period of seven yearscommencing from 1st September, 1990. Can it be said that theamount so paid by the assessee in the relevant year calculated atthe rate of 30% of the net profits of the business to the erstwhilepartners is capital in nature? The agreement that the assesseeshallpay to the retiring partners annually a sum equivalent to 30%of the net profits of the business subject to a minimum amount ofRs.60,000 /- leads us to hold that it is related to the annual profitswhich flow from the business activities of the assessee. Thoughmuch emphasis was placed by the learned counsel for the revenuethat by the aforenoticed agreement a minimum amount ofRs.60,000 /- was agreed to be paid by the assessee for a period ofseven years which showed that the payment has relation to theactual value of the assets and was a consideration to the erstwhilepartners for their disassociation from the firm. In our view thefact that the Dissolution Deed provides for a sum equivalent to 30% of the net profits of the business though subject to minimumamount of Rs.60,000 /- , shows that the said sum of 30% netprofits every year for seven years is not related to or tied up in anyway to any fixed sum agreed to between the parties, as part of theconsideration to the retiring partners for disassociating from thepartnership firm. The Dissolution Deed does not refer to anycapital sum anywhere. The minimum amount of Rs.60,000 /-referred to in the Dissolution Deed cannot be construed to be acapital sum since the agreement by the assessee was to pay to theretiring partners a sum equivalent to 30% of the net profits of thebusiness subject, ofcourse, to the minimum amount ofRs.60,000 /- . Thus the agreement between the parties which isreflected from the Dissolution Deed and the surroundingcircumstances including the memorandum of understanding showthat the payment made by the assessee to the continuing parties isrelated to the annual profits that flow from the activities of theassessee firm and it cannot be said to have relation to the capitalvalue of the assets of the estate and also the payment so made isnot related or tied up in any way to any fixed sum agreed betweenthe parties as part of the consideration to the retiring partners for disassociating from the firm. The expenditure thus, in the sum ofRs. 1,34,678 /- cannot be construed to be an expenditure in capitalnature. disassociating from the firm. The expenditure thus, in the sum ofRs. 1,34,678 /- cannot be construed to be an expenditure in capitalnature. 4.Before the Income Tax Appellate Tribunal, the variousjudgments were cited by the assessee as well as by the revenue insupport of their case. Inter alia, the assessee heavily relied uponthe judgment of the Supreme Court in the case of TravancoreSugars And Chemicals Limited vs. Commissioner of Income-tax, Kerala , 62 ITR 566. The assessee also relied upon thejudgment of the Supreme Court in the case of Devidas VithaldasAnd Company vs. Commissioner of Income- Tax, Bombay City 1 ,84 ITR 277 and Commissioner of Income- Tax, Bombay City 11vs. Sitaldas Tirathdas , 41 ITR 367. On the other hand, therevenue placed reliance on the judgment of the Supreme Court inthe case of Commissioner of Income- Tax, Central, Bombay vs.Jalan Trading Co. Pvt. Limited , 155 ITR 536. 5. Since the assessee has not put in appearance, weconsidered the aforesaid judgments with the assistance of thelearned counsel for the revenue. Since the assessee has not put in appearance, we 6. As has been said umpteen times that the question whether a particular expenditure is in the nature of capitalexpenditure or in the nature of revenue expenditure has to bedecided on the facts of each case. The Court has to ascertain thetrue nature and the character of the transaction from the terms ofthe agreement and the surrounding circumstances. No single testis decisive. However, the broad tests laid down by the Courts fromtime to time though applied in the peculiar facts of that case mayhelp in deciding and determining whether a particular expenditureis in the nature of capital expenditure or in the nature of revenueexpenditure. 7.The line of demarcation between capital expenditure andrevenue expenditure is very thin. As has been highlighted by theSupreme Court in the case of Assam Bengal Cement Co. Ltd. vs.Commissioner of Income- tax, West Bengal , (1955) 27 ITR 34. Inthe case of Travancore Sugars And Chemicals Limited vs.Commissioner of Income- tax, Kerala , (supra), the SupremeCourt again cautioned that it is often difficult, in any particularcase, to decide and determine whether a particular expenditure isin the nature of capital expenditure or in the nature of revenueexpenditure. It is not easy to distinguish whether an agreement is for the payment of price stipulated in instalments or for makingannual payments in the nature of income. The court has to looknot only into the documents but also at the surroundingcircumstances so as to arrive at a decision as to what was the realnature of the transaction from the commercial point of view. Nosingle test of universal application can be discovered for a solutionof the question. The name which the parties may give to thetransaction which is the source of the receipt and thecharacterization of the receipt by them are of little consequence. Inthe backdrop of these observations, the Supreme Court in the factsand circumstances that were obtaining in the case of TravancoreSugars And Chemicals Limited vs. Commissioner of Income-tax, Kerala , (supra), held thus:- "Examining the transaction from this point ofview, it is clear in the present case that theconsideration for the sale of the threeundertakings in favour of the appellant was : (1)the cash consideration mentioned in the principalagreement, viz., clauses 3, 4(a) and 5(a), and (2)the consideration that Government shall beentitled to twenty per cent of the net profitsearned by the appellant in every year subject to a "Examining the transaction from this point ofview, it is clear in the present case that theconsideration for the sale of the threeundertakings in favour of the appellant was : (1)the cash consideration mentioned in the principalagreement, viz., clauses 3, 4(a) and 5(a), and (2)the consideration that Government shall beentitled to twenty per cent of the net profitsearned by the appellant in every year subject to a maximum of Rs. 40,000 per annum. With regardto the second part of the consideration there arethree important points to be noticed. In the firstplace, the payment of commission of twenty percent on the net profits by the appellant in favourof the Government is for an indefinite period andhas no limitation of time attached to it. In thesecond place, the payment of the commission isrelated to the annual profits which flow from thetrading activities of the appellant- company andthe payment has no relation to the capital valueof the assets. In the third place, the annualpayment of 20 per cent commission every year isnot related to or tied up, in any way, to any fixedsum agreed between the parties as part of thepurchase price of the three undertakings. Thereis no reference to any capital sum in this part ofthe agreement. On the contrary, the very natureof the payments excludes the idea that anyconnection with the capital sum was intended bythe parties. It is true that the purchaser maybuy a running concern and fix a certain price andthe price may be payable in a lump sum or maybe payable by instalments. The mere fact thatthe capital sum is payable by instalments spreadover a certain length of time will not convert thenature of that payment from the capital expenditure into a revenue expenditure, but thepayment of instalments in such a case wouldalways have some relationship to the actual pricefixed for the sale of the particular undertaking.As we have already mentioned, there is nospecific sum fixed in the present case as anadditional amount of price payable in addition tothe cash consideration and payable byinstalments or by any particular method. In viewof these facts we are of opinion that the paymentof the annual sum of Rs. 42,480 in the presentcase is not in the nature of capital expenditurebut is in the nature of revenue expenditure andthe judgment of the High Court of Kerala on thispoint must be overruled". 8.In Devidas Vithaldas And Company vs. Commissioner of Income- tax, Bombay City 1 , (supra)the Supreme Courtobserved that in distinguishing between capital and revenueexpenditure the courts applied in different cases, different tests.None- the- less, none of them by itself is conclusive and thedetermination one way or the other has to emerge on the facts andin the circumstances of each case. The Supreme Court thenobserved thus:- 8.In Devidas Vithaldas And Company vs. Commissioner of Income- tax, Bombay City 1 , (supra)the Supreme Courtobserved that in distinguishing between capital and revenueexpenditure the courts applied in different cases, different tests.None- the- less, none of them by itself is conclusive and thedetermination one way or the other has to emerge on the facts andin the circumstances of each case. The Supreme Court thenobserved thus:- "One of the tests so applied is whether theexpenditure in question was for bringing intoexistence an asset or an advantage of `anenduring nature', and is made `once and for all',meaning thereby an expenditure made once andfor all for procuring and enduring benefit. It maybe payable not necessarily all at once but even byinstalments as against a recurrent expenditure inthe nature of operational expenses. (See AssamBengal Cement Co. Ltd. v. Commissioner ofIncome- tax). The question in such cases wouldbe, is the expenditure the assessee's workingexpenses laid out as part of the process of profitearning or a capital outlay necessary for theacquisition of a property or of rights of apermanent character, the possession of which isa condition of carrying on the trade. But theexpressions, `enduring benefit', and `rights of apermanent nature', are only descriptive and notdefinitive and are relative in meaning, notsynonymous with perpetual or everlasting. Forinstance, an expenditure incurred in commonwith other companies producing copper to bringdown production so as to prevent a steep fall inthe prices was construed to mean for one of themto be out of production for 12 months only andnot for good. On such construction, it was held that to call such an expenditure a capitalexpenditure would be contradiction in terms, for,it was not and was not intended to be one foracquiring a right of an enduring benefit or as anaccretion to the capital or income earningstructure of the business. In Commissioner ofIncome- tax v. Coal Shipments (P.) Ltd. anagreement was arrived at between two companiesexporting coal to Burma. The assessee- companyagreed thereunder to pay, in consideration of theother company forbearing from exporting andprocuring coal for its export by the assessee-company, five annas per ton (subsequently raisedto Rs. 1-5-0 per ton). The amounts so paid to theother company were taxed in the hands of thatcompany. The respondent- company claimedthem as admissible business expenditure for theassessment year in question. The revenue, onthe other hand, claimed that the payments werefor acquiring monopoly and were, therefore, notallowable as revenue expenditure. This courtupheld the assessee's contention that theexpenditures were not for acquiring themonopoly, but were made to make the businessmore facile and profitable, that they were madeas a temporary measure and not for deriving anadvantage of an enduring character. Observing that the agreement between the two companieswas not for any fixed term and could beterminated at any time at the volition of any ofthe parties, it was held that, although anenduring benefit need not be of an everlastingcharacter, it should not at the same time betransitory or ephemeral, so that it can beterminated at any time at the volition of either ofthe parties. Payments to ward off competitionwould constitute capital expenditure, providedthe object is to derive an advantage byeliminating the competition over some length oftime but such a result would not follow if there isno certainty of duration for such an advantageand the same could be put an end to at any time.Thus, what the extent of durability orpermanence should be depends on the facts ofeach case. Payments made by a lessee of a limestonequarry to the Government, who were the lessors,in consideration of a covenant which eliminatedcompetition in the lessee's field of operations fortwenty years, which was the lease period, wereheld to be capital expenditure for acquiring anenduring benefit to the lessee. On the otherhand, registration of trade- marks under theTrade Marks Act, 1940, valid for a period of seven years only, on the expiry of which it had to berenewed by paying fresh fees, was held not tobring any enduring benefit, and, therefore, thefees paid for registration were not capital butrevenue expenditure. Registration is only a modeof ensuring the exclusive right in a trade- mark,and not the acquisition of the trade- mark itself,which would be an acquisition of a capital asset.Such a distinction was made in a case whereexpenditure was for the renewal of a licence,which was held to be a payment made aspurchase price of a monopoly for the duration ofthe licence, which was only for twelve months.The thing that was paid for, it was said, was of apermanent quality, that is, the monopoly,although its permanence being conditioned bythe renewal of the terms under which the licencewas granted was short- lived. Such anexpenditure was treated as of that class to whicha premium on the grant of a lease belongs,which, admittedly, is not deductible. (SeeHenriksen v. Grafton Hotel Ltd.). In Strick v.Regent Oil Co. Ltd., Lord Reid, however, limitedthe decision in Henriksen's case, to its ownspecial facts and expressed his disagreementwith it if it was to be held to have laid down anygeneral proposition. The expression `enduring advantage' is, thus, a relative term, not enduringin the sense of its being permanent, but issufficiently durable depending upon the nature ofthe terms upon which it can be acquired. So alsothe expression `once and for all', which does notmean payment at one time of the whole amount,but includes payment of a lump sum as distinctfrom recurrent, distributed in periodicinstalments. advantage' is, thus, a relative term, not enduringin the sense of its being permanent, but issufficiently durable depending upon the nature ofthe terms upon which it can be acquired. So alsothe expression `once and for all', which does notmean payment at one time of the whole amount,but includes payment of a lump sum as distinctfrom recurrent, distributed in periodicinstalments. The other test sometimes applied is paymentwhen it is referable to fixed capital or capitalassets as against payment referable to circulatingcapital or stock- in- trade. But, this test also isnot capable of being treated as of uniformapplication. Price paid for the acquisition of acapital asset may take sometimes the form ofpayments of a revenue character. The simplestexample is interest paid on the unpaid purchaseprice of capital asset. Though in relation to andreferable to acquisition of a capital asset, it isnonetheless a revenue disbursement. On theother hand, in Assam Bengal Cement Co. v.Commissioner of Income- tax, where the paymentin question was for eliminating competition, thetest of the expenditure having been incurred forand referable to a capital asset was applied. Acquisition of the goodwill of the business is,without doubt, acquisition of a capital asset, and,therefore, its purchase price would be capitalexpenditure. It would not make any differencewhether it is paid in a lump sum at one time orin instalments distributed over a definite period.(See In re Ramjidas Jaini & Co. and Kuppuswamiv. Commissioner of Income- tax). Where,however, the transaction is not one foracquisition of the goodwill, but for the right touse it, the expenditure would be revenueexpenditure". 9.In Commissioner of Income- Tax, Central, Bombay vs. Jalan Trading Co. Pvt. Limited , (supra), the Supreme Courtreferred to its previous decision in Travancore Sugars AndChemicals Limited vs. Commissioner of Income- tax, Kerala ,(supra), and distinguished the same by observing thus:- "The facts of Travancore Sugars & Chemicals'case [1966] 62 ITR 566 (SC) were peculiar. Theassessee in that case purchased TravancoreSugars Ltd., a Government distillery at Nagercoil,and the business assets of a GovernmentTincture Factory at Trivandrum under anagreement dated June 18, 1937, entered intobetween the Government of Travancore and the promoters of the assessee company. Under theagreement, cash consideration of Rs. 3,25,000was to be paid for buying the assets ofTravancore Sugars Ltd. In regard to thedistillery, the sale price had to be arrived at onthe basis of joint valuation by the engineers to beappointed by the parties. As regards the TinctureFactory, the book valuation was to be adopted forfixing the consideration. The existing distillerylicence was agreed to stand recognised in thehands of the assessee for period of five years afterits termination. Government also undertook topurchase pharmaceutical products manufacturedby the assessee at the Tincture Factory.Government reserved the right to nominate adirector on the board of directors of the assesseecompany without voting powers. The agreementfurther stipulated payment to the Government of20% of the net profits earned by the companyevery year subject to a limit of Rs.40,000 perannum and certain other payments were alsoundertaken. The 20% stipulation was reduced to10% by a subsequent agreement. The questionthat fell for consideration was whether paymentof Rs.42,480 by the assessee company to theTravancore Government in terms of theagreement referred to above as modified, was allowable expenditure under s. 10 of the Act inthe year under consideration. This court stated(p.570 of 62 ITR): ' It is often difficult, in any particularcase, to decide and determine whether aparticular expenditure is in the natureof capital expenditure or in the nature ofrevenue expenditure. It is not easy todistinguish whether an agreement is forthe payment of price stipulated ininstalments or for making annualpayments in the nature of income. Thecourt has to look not only into thedocuments but also at the surroundingcircumstances so as to arrive at adecision as to what was the real natureof the transaction from the commercialpoint of view. No single test of universalapplication can be discovered for asolution of the question. The namewhich the parties may give to thetransaction which is the source of thereceipt and the characterization of thereceipt by them are of littleconsequence. The court has toascertain the true nature and characterof the transaction from the covenants of the agreement tested in the light ofsurrounding circumstances'." 10.The Supreme Court also observed that insofar as thetests are concerned, the test laid down in Assam Bengal CementCo. Ltd. vs. Commissioner of Income- tax, West Bengal (supra)andTravancore Sugars And Chemicals Limited vs.Commissioner of Income- tax, Kerala , (supra) were not different. 11.It is interesting to note that in Commissioner ofIncome- Tax, Central, Bombay vs. Jalan Trading Co. Pvt.Limited , (supra), the Supreme Court also referred to its laterdecision after remand in Travancore Sugars And ChemicalsLimited vs. Commissioner of Income- tax, Kerala , 88 ITR 1 andreferred to para 10 of the report wherein the following observationswere made:- The Supreme Court also observed that insofar as the "In considering the nature of the expenditureincurred in the discharge of an obligation under acontract or a statute or a decree of some similarbinding covenant, one must avoid being caughtin the maze of judicial decisions rendered ondifferent facts and which always presentdistinguishing features for a comparison with thefacts and circumstances of the case in hand. Nor would it be conducive for clarity or for reaching alogical result if we were to concentrate on thefacts of the decided cases with a view to matchthe colour of that case with that of the casewhich requires determination. The surer way ofarriving at a just conclusion would be to firstascertain by, reference to the document underwhich the obligation for incurring theexpenditure is created and thereafter to apply theprinciple embalmed in the decisions of thosefacts. Judicial statements on the facts of aparticular case can never assist courts in theconstruction of an agreement or a statute whichwas not considered in those judgments or toascertain what the intention of the legislaturewas. What we must look at is the contract or thestatute or the decree, in relation to its terms, the obligation imposed and the purpose for which thetransaction was entered into." 12.The Supreme Court inJalan'scase (supra)highlighted that judicial decisions on facts of a particular case cannever assist courts in construction of an agreement. The contractmust be looked into in relation to its terms and associated aspectslike the object and obligations. The Supreme Court referring to thefacts obtaining in Jalan's case (supra) observed thus:- 12.The Supreme Court inJalan'scase (supra)highlighted that judicial decisions on facts of a particular case cannever assist courts in construction of an agreement. The contractmust be looked into in relation to its terms and associated aspectslike the object and obligations. The Supreme Court referring to thefacts obtaining in Jalan's case (supra) observed thus:- "M/s. Jalan Trading Co., a partnership firm, hadinitially been appointed as the sole selling agent.On October 16, 1952, the assessee companycame to be incorporated and soon afterincorporation by agreement, the rights of thefirm were assigned to the assessee company.Neither the ITO nor the two appellate authoritiesand nor even the High Court went into thequestion as to whether the assessee was in factseparate from, and independent of, thepartnership firm. It is true that the tenability ofthe claim of deductibility as a businessexpenditure of the amount was examined bytaking it for granted that the payment had beenmade by the assessee to the firm. But the exactposition not having been investigated, no findinghas been recorded at any stage. The fact thatthe partnership and the assessee company bearthe same name and soon after incorporation, theagreement assigning the firm's rights in favour ofthe company had been entered, had obviouslyled the ITO to doubt the bona fides." 13.Jalan's case (supra), upon which strong reliance isplaced by the learned counsel for the revenue, cannot be applied tothe facts of this case. In that case neither the assessing officer nor the appellate authority nor the Appeal Tribunal nor the High Courtwent into the question whether the assessee was in fact a separatefirm, and independent of, the partnership firm. The exact positionwas not investigated, nor any finding recorded. Even otherwise, ashas been repeatedly held by the Supreme Court whether anexpenditure is allowable as revenue or capital expenditure, has tobe decided on the facts of each case. In the facts andcircumstances of the present case, the agreement between theparties as is discerned from the Dissolution Deed, it can safely besaid that payment of 30% of net profits payable by the assesseecompany to the retiring partners for a period of seven years subjectto the minimum payment of Rs.60,000 /- was related to annualprofits that flow from the business activities of the assesseecompany and the said payment cannot be related to the capitalvalue of the assets. The Dissolution Deed does not specify anycapital sum payable to the retiring partners. The payment of 30%of the annual profits, subject to minimum of Rs.60,000 /- everyyear for seven years, cannot be held to be the fixed price forpurchase of the capital assets. All in all, the expenditure in thesum of Rs. 1,34,678 /- by the assessee in the relevant year cannot be said to have been wrongly held by the Appellate Tribunal asrevenue expenditure. 14.We, accordingly, answer the question by holding thatthe amount of Rs.l,34,678 /- paid by the assessee to the retiringpartners is in the nature of revenue expenditure. 15.The Appeal is dismissed. Since the assessee has not chosen to appear, we direct the appellant to bear its own costs. R. M. LODHA, J. N. A. BRITTO, J. mc.