9911796707
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Issues:
- Deductibility of annual payment of Rs. 30,000 as an allowable deduction for assessment years 1967-68, 1968-69, 1969-70, and 1970-71. - Nature of the transaction between the assessee and Mrs. Sarada regarding the right of franchise. - Determination of whether the payment of Rs. 30,000 to Mrs. Sarada is a revenue expenditure or capital in nature. Analysis: The case involved a private limited company engaged in the purchase and sale of various products, including typewriters and calculators. The company claimed a deduction of Rs. 30,000 per year as agency consideration paid to Mrs. Sarada. The assessing authority rejected the claim, alleging that the transaction was a camouflage to divert profits, and the payment was either a diversion of profits or a capital expenditure. The Appellate Authority Commission (AAC) ruled in favor of the assessee, but the Tribunal agreed with the assessing authority. The Tribunal viewed the payment as capital in nature, part of the consideration for acquiring the right of franchise. The Tribunal's decision was based on the agreement between the assessee and Mrs. Sarada, which outlined the terms of the assignment of the franchise rights. The High Court analyzed the agreement and concluded that the payment of Rs. 30,000 per year was capital expenditure. The Court emphasized that the payment was for acquiring the distribution rights necessary for the company's business operations. The Court held that the payment, even though made in monthly installments, was for an enduring capital asset, justifying its treatment as capital expenditure. Given the capital nature of the expenditure, the Court did not delve into other aspects of the transaction, such as potential profit diversion. The Court ultimately ruled in favor of the Revenue, denying the deduction claimed by the assessee. The judgment highlighted the importance of the nature of the expenditure in determining its deductibility for tax purposes.
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