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TMI Blog1988 (7) TMI 24X X X X Extracts X X X X X X X X Extracts X X X X ..... on 37(1) of the Income-tax Act, 1961 ?" The facts relating to this application are that the assessee, who is the owner of the collieries known as Pure Shampoor Collieries, appointed one Mr. Mehta for proper and efficient management of the said collieries by an agreement dated March 2, 1954. The agreement was effective from March 1, 1954, for a period of five years. The agreement was renewed and was operative till January 1, 1964. However, before the expiry of the second period of five years, the agreement was terminated on February 23, 1962. The managing contractor, Mr. Mehta, was paid a sum of Rs. 50,000 as compensation for the premature termination of the agreement. Clause 29 of the agreement provided for the settlement of compensation b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the payment were not, in any manner, challenged by him. The matter was taken in appeal to the Appellate Assistant Commissioner who found that the agreement was terminated on grounds of commercial expediency and that the settlement made between the two parties was a bona fide and genuine one. As for the legal issue, the Appellate Assistant Commissioner held that it was revenue expenditure. The Tribunal affirmed the findings and reasoning of the Appellate Assistant Commissioner. Mr. A. N. Bhattacharjee, appearing for the Revenue, has relied on several decisions in support of his contentions that in this case an enduring benefit was received by the assessee and, accordingly, the expenditure in this case should be treated as capital expendi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng the foundation or the basis of future economic prosperity. The assessee in those cases had to reach decisions of far-reaching importance on matters of immediate and pressing interest. But, in the case before the Punjab and Haryana High Court, the assessee-company was not faced with any immediate or present danger to be averted ; neither did any financial problem confront the board of directors for terminating the managing agency agreement nor was any economic difficulty to be surmounted by adopting this course. On these facts, it was held that the payment of Rs. 6 lakhs for termination of managing agency was only a capital expenditure and was not a permissible deduction under section 10 (2) (xv) of the old Act. Counsel for the Revenue h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... only for the termination of an arrangement which had become dangerous to the future well-being of the company and reflected a genuine and bona fide settlement, it was not actuated by generosity or any indirect or improper motive, and it was dictated solely by considerations of commercial expediency and benefit to the company. It was, therefore, an expenditure laid out wholly and exclusively for the purpose of the business and was an allowable deduction under section 10 (2) (xv). It may be mentioned that this decision was relied on by the Appellate Assistant Commissioner in arriving at his conclusion. In this case, the assessee appointed a managing contractor for the proper and efficient management of the colliery under an agreement dated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of five years. There were repeated violations of mining regulations which endangered the very life of the colliery. Evidence was produced before the Appellate Assistant Commissioner in the form of notices received from the Regional Inspector of Mines for violation of the Coal Mines Regulations. The violation was made by the managing contractor who was actually carrying on the mining operations. The continued violation of mining regulations, in spite of the fact that the appellant had a full time representative at the colliery as per the agreement, compelled the assessee to force the issue and terminate the agreement with the managing contractor to safeguard his assets. On these facts, the agreement was terminated. A settlement was made from ..... X X X X Extracts X X X X X X X X Extracts X X X X
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