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TMI Blog2001 (2) TMI 259X X X X Extracts X X X X X X X X Extracts X X X X ..... therefore, to be deducted while computing appellant's income. In support of the claim, the assessee has placed reliance on terms and conditions of agreement, dt. 2nd June, 1983, as also on decision of Hon'ble Supreme Court in the case of Devidas Vithaldas Co. vs. CIT 1972 CTR (SC) 28 : (1972) 84 ITR 277 (SC). The AO held that what the assessee acquired under the agreement was a capital asset and the payment of Rs. 1 lakh in question was part of consideration for transfer of a capital asset and, therefore, a capital expenditure. The assets were acquired for an enduring benefit. Therefore, the payment made could not be allowed as business deduction. The learned CIT(A) agreed with the above view although she wrongly held that matter was covered in favour of the Revenue as per dissenting and minority decision of Justice Sikri, Chief Jutice (CJI), in the case of Devidas Vithaldas Co. 3. The assessee has brought the issue in appeal and it was vehemently contended on behalf of the assessee by Shri Soparkar that assessee had taken over running business of 'Vishala' and Rs. 1 lakh or 5 per cent of sale (whichever is higher) was payable on the yearly basis for using goodwill and other ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... deration of terms of the agreement, Their Lordships held that annual consideration was being paid for "use" of goodwill and, therefore, payment made was a revenue expenditure. The goodwill was not transferred but a licence to use it was given by the transferor for a consideration and said consideration was deductible as a revenue expenditure. 4.1. Their Lordships of the Hon'ble Supreme Court, as per majority decision, laid down the following propositions (summarised) which are to be considered for disposal of this appeal: (i) That question whether expenditure is in nature of a revenue or capital would depend upon the nature of transaction as embedded in the agreement. It is to be determined whether it is sale of goodwill or a licence for use of goodwill or name of the assignor. (ii) That it is not always easy to distinguish whether an agreement is for the payment of price in stipulated instalments or for making annual payment in the nature of income. The assessing authority is duty-bound to determine the true legal relationship resulting from a transaction. 4.2. One of the tests applied for determining whether expenditure in question is capital or revenue in character is to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the said business on and from 1st June, 1983. (5) That the party of the first part not only hands over only running business but also its all movable and immovable assets and liability including goodwill thereof. (6) That for the purpose of taking over all the assets and liability the balance sheet as at 31st May, 1983, has been drawn and prepared by the party of the first part, which has been accepted and carried over by the party of the second part on and from 1st June, 1983 along with the running business known as "Vishala". (7) That the party of the first part shall do all the necessary acts to fulfil the agreement arrived at and shall not disturb the peaceful running, maintaining, continuing, possession and enjoyment of the said business now handed over to the party of the second part. (8) That in consideration of whatever that has been handed to the party of the second part, more particularly discussed hereinbefore, the party of the second part shall pay a sum of Rs. 1,00,000 (Rupees one lac only) or 5 per cent of sales, whichever is higher. (9) That for the purpose of above referred sum calculation will be based on the basis of the accounting year followed by the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... It is clear from above that party of first part has handed over the running business of restaurant and hotel "Vishala" to the party of second part with all its movable and immovable assets and liabilities including goodwill thereof. The term "handed over" is required to be considered properly as it might indicate that handing over was a temporary phenomenon; the running business was given on a licence. But such a construction when other terms are taken into account is not possible. It is transfer of running business with all assets and liabilities including goodwill. There is absolutely no clause in the agreement which would indicate that transferor on the happening of a particular event is entitled to get back the running business or any part thereof. The party of the first part has no right at all to terminate the agreement. The only dispute which the said party can raise is provided in cl. 12 and the same can only be towards the "sum payable" to the said party as per accounts maintained by the party of the second part. In other words, the party of first part could dispute the working of the sum payable to the party of the second part and get it corrected under the terms of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ransferred for a consideration which is not paid once and for all but is to be paid through annual instalments. 4.8. The transferor trust has no right to terminate the contract but the transferee had a right to terminate the same. In other words, there is a clause giving the party of the second part a right to terminate the contract and stop annual payment. In that case lump sum amount of compensation as the said party would be entitled under the law in substitution for the amount provided in cl. 8, would be payable by party of the second part to party of the first part. There is no provision to indicate that the running business transferred under the agreement, would in any event go back to party of first part. There is further no indication that goodwill or any part thereof remained with party of first part after the agreement in question came into operation. Clause (7) of the agreement also indicates the ownership of assets was transferred and not merely use of the assets. As noted earlier, the only right vested with party of first part is to get determined correctly on the basis of accounts maintained by party of second part, the annual sum payable to the party of first part. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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