Law:

Section:

Section 37(1) of the Income-tax Act, 1961 [Corresponding to section 10(2)(xv) of the Indian Income-tax Act, 1922] - Business expenditure - Allowability of - Assessment year 1942-43 - Assessee, one of partners of a firm which was managing agent of a company, purchased interest of another partner in firm for certain consideration and claimed that amount as deduction treating it to be revenue expenditure - Revenue authorities disallowed assessee's claim on ground that payment was in nature of capital expenditure - Whether since assessee had incurred expenditure for acquiring a profit-yielding asset, it was in nature of capital expenditure, and consequently, authorities below rightly rejected assessee's claim - Held, yes FACTS The assessee was one of the partners of a partnership firm who were the managing agents of a company. The remuneration of these managing agents consisted of a monthly payment of Rs. 1,000 and a percentage commission on various items. There were four partners in the firm. The assessee purchased the interest of another partner in the managing agency firm for a consideration. In the assessment year he claimed that that amount should be deducted as revenue expenditure and should not be treated as a capital expenditure. That contention was negatived by the revenue authorities. On reference: HELD It was not a case where any fresh capital was put into the partnership with a view to increase its profits. The assessee purchased for his exclusive benefit the interest of another partner, one of the partners who owned a five anna interest in the partnership. For acquiring that asset which was a profit yielding one he had to expend that amount. It was in the nature of capital expenditure for acquiring a profit-yielding asset. In such circumstances it was impossible to accept the contention strenuously pressed by the assessee, that it was really in the nature of a revenue expenditure. The view taken by the revenue authorities was correct. Note: Decision was against the assessee. M. Subbaraya Aiyar for the Applicant. C.S. Rama Rao Sahib for the Respondent. JUDGMENT Satyanarayana Rao, J.-The Income-tax Appellate Tribunal, Madras Bench, have referred to us…

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