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TMI Blog1987 (2) TMI 2X X X X Extracts X X X X X X X X Extracts X X X X ..... wed as a deduction under section 10(2)(xv) of the Indian Income-tax Act, 1922 ? " The assessee carried on the business of manufacture and sale of woollen goods, cotton textiles and hides and leather products. The activity of tanning hides and manufacturing leather products was carried on under the name and style of Cooper Allen and North West Tannery Branches. For the assessment year 1959-60, under the Indian Income-tax Act, the relevant accounting period of which was the calendar year ending on December 31, 1958, the assessee had claimed a deduction of Rs. 50,000 paid to Messrs. Textile & General Supplies P. Ltd., Bombay (hereinafter referred to as " Textile & General Supplies "). The assessee's claim was made on the basis that the as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Walker stipulated that Charles Walker would permit the use by the assessee of a number of registered trade marks specified in the agreement and further disclose and make known to the approved officers of the assessee, the technique, practices and application of specialised tanning processes. Besides providing for the provision of technical supervision by Charles Walker and payment by way of salary, travelling expenses and maintenance to the personnel sent out by it to India, the agreement also provided that in the event of liberalisation of imports, Charles Walker would limit its export to India of certain products. The assessee undertook to pay to Charles Walker technical fees calculated at 5% on the selling price of the products produced ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ship. An agreement was entered into by the assessee with Textile & General Supplies in which, after referring to the agreement with Charles Walker, it was stipulated that the distributors would receive a discount of 15% of the sale price fixed by the assessee and that the agreement would extend for the period of seven years. Significantly, no reference was made to the obligation of the assessee to pay Rs. 50,000 to the distributors, condition which was mentioned in the agreement with Charles Walker alone. The obligation to pay Rs. 50,000 to the distributors was one of the conditions subject to which the assessee became entitled to the use of the registered trade marks and to the disclosure of the technical practices and application of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e case of Countess Warwick Steamship Co. Ltd. v. Ogg [1924] 2 KB 292 at 298, observed that it is very difficult to lay down any general rule which is both sufficiently accurate and sufficiently exhaustive to cover all or even a great number of possible cases. Only broad tests could be laid down. Some such tests were laid down by this court in Assam Bengal Cement Co. Ltd. v. CIT [1955] 27 ITR 34. This court discussed the broad principles at page 45 of the report. It is not necessary to reiterate all these principles but one of the tests was that the aim and object of the expenditure was one of the guiding factors. The aim and object of incurring the expenditure in this case was the acquisition of the know-how. This court again in the case o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... agreement would extend for period of seven years. Significantly, no reference was made to the obligation of the assessee to pay Rs. 50,000 to the distributors, a condition which was in the agreement with Charles Walker alone. It is clear that paragraph 7 referred to hereinbefore was an integral part of the agreement with Charles Walker and was a part of the consideration for the receipt of the benefit. It is not possible to find out the reasons which persuaded Charles Walker to insist upon the appointment of Textile & General Supplies as distributors of the assessee. It was necessary condition of the agreement with Charles Walker. It was perhaps done to protect the technical know-how which Charles Walker was parting with so that the distr ..... X X X X Extracts X X X X X X X X Extracts X X X X
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