Law:

Section:

Section 37(1) of the Income-tax Act, 1961 - Business expenditure - Allowability of - Assessment years 1962-63 and 1963-64 - Assessee-firm was carrying on business as a book binder and publisher - It entered into an agreement with 'B' under which it obtained right to run a business of a publication concern for a consideration of a fixed sum of Rs. 5,000 per annum plus a sum equivalent to 10 per cent of net profits of each year of business - Whether since said payments were not limited to any particular and definite duration, it could not be said that it was a mode of payment of purchase price by instalments - Held, yes - Whether in view of said fact as payments were not related to any specified sum which was agreed upon by parties as purchase price of business, said payments were to be treated as revenue expenditure and was eligible for deduction - Held, yes FACTS The assessee was a registered firm carrying on business as a book binder and publisher. It entered into an agreement dated 15-11-1958, with 'B' under which it obtained the right to run the business of a publication concern for a consideration of a fixed sum of Rs. 5,000 per annum plus a sum equivalent to 10 per cent of the net profits of each year of business. During the accounting period relevant to the assessment year 1962-63, the assessee paid a total sum of Rs. 15,497 to 'B' as per the terms of the agreement dated 15-11-1958, and claimed the said amount as a business expenditure. The ITO disallowed the claim, as in his opinion the amount in question constituted consideration for the purchase of the business and was, therefore, in the nature of capital expenditure. On appeal, the AAC confirmed the disallowance made by the ITO. On further appeal, the Tribunal took the view that there was an outright sale of the business by 'B' in favour of the assessee but that the payment of Rs. 15,497 was allowable as revenue expenditure, in view of the decision in Commissioners of Inland Revenue v. 36/49 Holdings Ltd. [1943] 25 TC 173 (CA) and in Travancore Sugars and Chemicals Ltd. v. CIT [1966] 62 ITR 556 (SC). On reference: HELD In the instant case, under the agreement the assessee had undertaken to pay a sum…

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