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Issues Involved:
1. Whether the sum of Rs. 34,650 paid to the Bhor State under the agreement is a permissible allowance under section 10(2)(xv) of the Indian Income-tax Act. 2. Whether the Tribunal misdirected itself in making the order of remand in Income-tax Appeal No. 8639 of 1956-57. Issue-Wise Detailed Analysis: 1. Permissibility of Rs. 34,650 as Allowance under Section 10(2)(xv) The primary issue was whether the payment of Rs. 34,650 made by the assessee to the Bhor State under an agreement could be considered a revenue expenditure deductible under section 10(2)(xv) of the Indian Income-tax Act. The agreement provided several concessions to the assessee, including monopoly rights, exemption from property tax increases, income-tax exemption, and exemption from the Factories Act. The Tribunal had previously concluded that the payment was a capital expenditure, stating: - "It is manifest that the payment was made in order to acquire, before the business even commenced, freedom from all competitions, levy of taxes existing or in the future and immunity from the Indian Factories Act." - "An expenditure to buy off competition is normally a capital expense for it brings into existence an asset of an enduring nature." The assessee's argument, as presented by Mr. Palkhivala, was that the payment should be considered revenue expenditure, except for the portion attributable to income-tax exemption. He contended that the payments were made from yearly revenue income and were conditional on profits, thus should be considered revenue in nature. He further argued that payments related to obtaining concessions in property tax and Factories Act exemptions were also revenue expenditures. However, the court found it difficult to accept this contention, emphasizing the principles laid down by the Supreme Court in Assam Bengal Cement Co. Ltd. v. Commissioner of Income-tax, which distinguished between capital and revenue expenditures based on the aim and object of the expenditure. The court noted that the agreement was made to secure certain advantages before the business commenced, thus providing enduring benefits. The court concluded: - "The facts of the present case so far as the contention of the assessee relating to the expenditure attributable to the acquisition of monopoly rights are concerned, are similar and, therefore, in our judgment they fall within the rule laid down by their Lordships of the Supreme Court." - "The expenditure, therefore, in our judgment, is not chargeable to revenue but is a capital expenditure." The court answered the first question in the negative, indicating that the payment of Rs. 34,650 was not a permissible allowance under section 10(2)(xv). 2. Tribunal's Order of Remand The second issue concerned whether the Tribunal misdirected itself by remanding the case to the Appellate Assistant Commissioner for further inquiry. The Tribunal had directed the Appellate Assistant Commissioner to ascertain whether the cheques were sent by post or by hand, and whether they were sent on the express or implied request of the assessee, following the Supreme Court's decision in Ogale Glass Works Ltd. Mr. Palkhivala argued that the Tribunal's decision to remand was arbitrary, noting that the department had not appeared before the Appellate Assistant Commissioner and had not requested a remand. He also mentioned that the decision in New Jehangir Vakil Mills Ltd., which the Tribunal relied on, had been overruled by the Supreme Court. The court, however, rejected these arguments, stating: - "The power of the Tribunal in disposing of the appeal before it is very wide under section 33(4) of the Act." - "It cannot be disputed that prior to the decision of their Lordships of the Supreme Court in Ogale Glass Works' case, importance was not attached to the fact as to whether the cheques by which payment was made were sent by post or were delivered by hand." The court concluded that the Tribunal had not acted arbitrarily or capriciously in ordering the remand, as the relevant facts required further inquiry. The court answered the second question in the negative, upholding the Tribunal's order of remand. Conclusion Both questions were answered in the negative, indicating that the payment of Rs. 34,650 was not a permissible allowance under section 10(2)(xv) and that the Tribunal did not misdirect itself in ordering the remand. The assessee was ordered to pay the costs of the department.
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