9911796707
TMI Blog1971 (11) TMI 36X X X X Extracts X X X X X X X X Extracts X X X X ..... allowed as a deduction under section 10(2)(xv) of the Indian Income-tax Act, 1922 ? " The assessee, the British India Corporation Ltd., Kanpur, carries 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 is carried on under the name and style of Cooper Allen and North West Tannery branches. For the assessment year 1959-60 (the relevant accounting year being the calendar year ending December 31, 1958), the assessee claimed a deduction of Rs. 50,000 paid to Messrs. Textile General Supplies Private Ltd., Bombay, to whom we shall refer as " Textile General Supplies ". The claim was made on the basis that the assessee was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... exports 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 by the processes disclosed to it. Then follows paragraph 7 of the agreement : " The second participant (the assessee) agrees to appoint Textile and General Supplies Private Ltd., Army and Navy Building, Mahatma Gandhi Road, Bombay-1, India, a nominee of the first participant (Charles Walker) as distributors of the second participant for the sale of industrial leather manufactured by the second participant in India for the period of this agreement at a discount of 15% (fifteen per cent.) on the prices at which industrial leather covered by this agreement are sold to textile mil ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the registered trade marks and to the disclosure of the technical practices and application of the specialised processes to be supplied by Charles Walker. Paragraph 7 was an integral part of the agreement with Charles Walker and was as much a consideration for the receipt of the benefits from Charless Walker under the agreement as any other condition contained in the agreement. It will be noticed that paragraph 8 describes Textile General Supplies as a nominee of Charler Walker. There is nothing on the record to show what were the reasons which persuaded Charles Walker to insist upon the appointment of Textile General Supplies as distributors of the assessee. But, we have no doubt whatever that paragraph 7 constituted an important p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent made by a company carrying on manufacturing business under an agreement with two other companies in consideration of their giving to the assessee-company the full benefit of their technical and financial knowledge and experience was held to be a revenue expenditure. Romer L.J. observed : " The payment is a payment necessary for the purpose of enabling the company or the trader to earn the profits of its trade, and, therefore, it is a legitimate deduction from its profits when ascertained for the purpose of assessment under Schedule D. " The case was applied by the Patna High Court in Badridas Bansidhar v. Commissioner of Income-tax. Nothing has been shown to us to indicate that there has been any departure from the opinion expressed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he fact that in paragraph 7 of the agreement with Charles Walker it is mentioned that Rs. 50,000 would be paid to the distributors for meeting the initial expenses for establishing the distributorship. No doubt, the payment was to be made for setting up the distributorship. That merely indicates the nature of the expenditure when the distributors made it. So far as the assessee is concerned, the payment was made because it was bound to make it as a condition of the agreement with Charles Walker under which it was entitled to the benefit of using the trade marks and technical know-how. In Motor Sales v. Commissioner of Income-tax this court held upon somewhat similar facts that the expenditure incurred by the assessee for the construction ..... X X X X Extracts X X X X X X X X Extracts X X X X
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