Law:

Section:

Income-tax---Capital or revenue expenditures-- Determination of --Principles--Assessee, a tanner and manufacturer of leather products, entering into an agreement for use of different trade marks and obtaining know-how of specialised process of tanning for seven years-- Assessee, under the agreement was obliged to appoint nominee of the other party as its distributors for sale of its products and to pay to the said distributors a certain sum of Rupees for meeting with the initial expenses of establishing the distributorship--Such expenditures by assessee, held, were revenue expenditure in circumstances. Assam Bengal Cement Co. Ltd. v. C.I.T. (1955) 27 I T R 34 (SC); British Sugar Manufacturers Ltd. v. Harris (Inspector of Taxes) (1939) 7 I T R 101 (CA); C.I.T. v. Ciba of India Ltd. (1968) 69 ITR 692 (SC); C.I.T. v. Coal Shipments P. Ltd. (1971) 82 I T R 902 (SC); Countes Warwick Steamship Co. Ltd. v. Ogg (1924) 2 KB 292; Empire Jute Co. Ltd. v. C.I.T. (1980) 124 I T R 1 (SC); L.H. Sugar Factory and Oil Mills P. Ltd. v. C.I.T. (1980) 125 I T R 293 (SC) and Travancore Sugars and Chemicals Ltd. v. C.I.T. (1966) 62 I T R 566 (SC) ref. JUDGMENT SABYASACHI MUKHARJI, J.-- This is an appeal from the judgment and order of the High Court of Allahabad dated November, 25, 1971, The Income-tax Appellate Tribunal had referred to the High Court the following question for its opinion: "Whether, on the facts and in the circumstances of the case, the expenditure of Rs. 50,000 was a capital expenditure which could not be allowed 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 and General Supplies P. Ltd., Bombay (hereinafter referred to as "Textile and…

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