2001 (2) TMI 259 - AT - Income Tax

Summary

Issues Involved:
1. Disallowance of Rs. 1 lakh claimed as a revenue deduction towards license fees for use of goodwill.
2. Nature of the payment (capital vs. revenue expenditure).
3. Interpretation of the agreement between the assessee and the trust.
4. Reliance on the Supreme Court decision in Devidas Vithaldas & Co.

Detailed Analysis:

1. Disallowance of Rs. 1 lakh claimed as a revenue deduction towards license fees for use of goodwill:
The assessee, running a hotel and restaurant, claimed a deduction of Rs. 1 lakh as a recurring expense for the use of goodwill and other assets of a trust. The CIT(A) upheld the disallowance, agreeing with the AO that the payment was capital expenditure since the assets were acquired for enduring benefit.

2. Nature of the payment (capital vs. revenue expenditure):
The assessee argued that the payment was a revenue expenditure, relying on the Supreme Court decision in Devidas Vithaldas & Co. The AO and CIT(A) determined the payment to be capital expenditure, as it was part of the consideration for acquiring a capital asset. The Tribunal examined the nature of the transaction and the agreement, concluding that the payment was for acquiring a capital asset, not merely for the use of it.

3. Interpretation of the agreement between the assessee and the trust:
The Tribunal analyzed the agreement dated 2nd June 1983, noting that the trust handed over its running business, including all assets and liabilities, to the assessee. The agreement indicated a complete transfer of the business, not just a temporary arrangement for the use of assets. The Tribunal emphasized that the payment stipulated in the agreement was the total consideration for acquiring the business, including goodwill, and was not for the mere use of the assets.

4. Reliance on the Supreme Court decision in Devidas Vithaldas & Co.:
The assessee relied on the Supreme Court decision, arguing that the payment was for the use of goodwill. However, the Tribunal distinguished the present case from Devidas Vithaldas & Co., noting that in the latter, the payment was for the use of the name and goodwill, whereas in the present case, the agreement indicated a transfer of the entire business, including goodwill. The Tribunal concluded that the payment was capital in nature, as it was for acquiring an asset of enduring nature.

Conclusion:
The Tribunal upheld the CIT(A)'s order, concluding that the payment of Rs. 1 lakh was capital expenditure and not deductible as a revenue expense. The assessee's appeal was dismissed.