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Issues Involved:
1. Whether the payment of Rs. 2,50,000 made by the assessee-company to M/s. Navin Glass Products represented capital expenditure or revenue expenditure. Detailed Analysis: 1. Capital vs. Revenue Expenditure: The primary issue in the case was to determine whether the payment of Rs. 2,50,000 made by the assessee-company to M/s. Navin Glass Products was capital expenditure or revenue expenditure. The Tribunal had held that the payment was not capital expenditure and allowed it as a deduction in computing the profits and gains of the business of the assessee-company. Assessment Year and Context: The reference arose out of the assessment order for the assessment year 1970-71. The payment was made as part of a tripartite agreement involving the assessee, Surat Cotton Spinning & Weaving Mills (P) Ltd. (proprietors of Navin Glass Products), and Window Glass Ltd. All three companies were engaged in the manufacture of wired and figured glasses. The agreement aimed to prevent further losses and possible annihilation of the wired and figured glass industry by reducing excess productive capacity. Agreement Details: The agreement stipulated that Navin Glass Products would cease manufacturing certain types of glass for five years in exchange for compensation. The compensation was paid in installments, with the first installment of Rs. 2,50,000 due after 12 months from the date of the agreement. Legal Precedents: Several legal precedents were considered to determine the nature of the expenditure: - Assam Bengal Cement Co. Ltd. v. CIT [1952] 21 ITR 38: The court held that payments made to secure conditions of security for business operations were capital in nature. - CIT v. Coal Shipments Pvt. Ltd. [1968] 70 ITR 429: The court held that payments made to avoid competition were revenue expenditure if the arrangement lacked enduring beneficial effect and could be terminated at any time. - Empire Jute Co. Ltd. v. CIT [1980] 124 ITR 1: The court held that expenditure incurred to remove restrictions on business operations was revenue in nature if it did not create a new asset or expand the profit-making apparatus. - Commissioner of Taxes v. Nchanga Consolidated Copper Mines Ltd. [1965] 58 ITR 241: The court held that compensation paid to a competitor to cease production for a short period was revenue expenditure. Court's Analysis: The court analyzed the agreement and the context in which the payment was made. The purpose of the agreement was to prevent competition and stabilize the market for wired and figured glass. The agreement had a duration of five years, which provided a significant period of stability for the assessee's business. Enduring Benefit: The court noted that the expenditure provided an enduring benefit to the assessee by eliminating competition for a substantial period. The benefit extended beyond the immediate year and contributed to the long-term stability and profitability of the assessee's business. Conclusion: The court concluded that the payment of Rs. 2,50,000 made by the assessee-company to M/s. Navin Glass Products was capital expenditure. The expenditure was incurred to secure an enduring advantage by eliminating competition for five years, which contributed to the long-term stability and profitability of the assessee's business. Therefore, the question was answered in the negative and in favor of the Revenue. Separate Judgment: Sudhindra Mohan Guha J. concurred with the judgment delivered by Sabyasachi Mukharji J., agreeing with the analysis and conclusion. Costs: The parties were directed to pay and bear their own costs.
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