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Issues:
1. Deductibility of payments made to a retiring partner for the use of export quotas from assessable income. Analysis: The case involved a partnership firm engaged in the export business, where a retiring partner, Sabapathy Mudaliar, was entitled to a share of export quotas. The firm made payments to Sabapathy under an agreement for the use of his share of quotas until reallocation. The main issue was whether these payments were deductible from the firm's assessable income. The Income-tax Officer disallowed the deduction, considering the payments as capital in nature, paid to acquire rights over Sabapathy's share of export quotas. However, the Appellate Assistant Commissioner allowed the deduction, stating that the payments were not for acquiring a capital asset but for utilizing a portion of the quota temporarily. The Tribunal disagreed with the Appellate Assistant Commissioner, characterizing the payments as a premium for Sabapathy's withdrawal from the export branch of the firm, thus disallowing the deduction. The High Court, however, held that the payments were not capital expenditure as the firm did not acquire any enduring asset. The payments were for utilizing the export quotas, not for acquiring them as capital assets. The Court emphasized that even if the firm had acquired Sabapathy's quota rights, the expenditure would not be capital in nature. The payments were considered as additions to the price of goods purchased for export, following the principle established in a previous case. The Court concluded that the payments were for the use of the full quota, including Sabapathy's share, and were deductible from the firm's assessable income. Therefore, the High Court ruled in favor of the assessee, allowing the deduction of payments made to Sabapathy Mudaliar for the use of export quotas from the firm's taxable profits. The Court answered the question in the affirmative, stating that the firm was entitled to costs for the reference, with a specified counsel fee.
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