C. I. T. CENTRAL BOMBAY versus JALAN TRADING CO. (P) LTD.

C. I. T. CENTRAL BOMBAY versus JALAN TRADING CO. (P) LTD.

On the finding that the assessee acquired a capital asset of an enduring nature by paying 75% of annual profits as consideration for obtaining the assignment of the sole selling agency, the payment was not deductible under section 10(2)(xv) of the Indian Income Tax Act, 1922, as it was capital expenditure. The arrangement constituted initial outlay for acquisition of a capital asset. The High Court erred in treating the payment as revenue expenditure by applying principles not generally applicable.

Parties
Appellant: C.I.T. Central (Bombay); Respondent: Jalan Trading Co. (P) Ltd.
Jurisdiction
India
Judgment Date
09 August 1985
Procedural Posture
Civil Appeal / Supreme Court Decision on Appeal From Bombay High Court in Income Tax Reference No. 112 of 1963
Outcome
Appeal allowed; judgment of High Court vacated.
Legal Topics
Income Tax Deductions, Capital Vs Revenue Expenditure, Assignment of Business Rights
Tax Law Income Tax Deductions Capital Vs Revenue Expenditure Assignment of Business Rights

Case Brief

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Parties

C.I.T. Central (Bombay)

Appellant

Jalan Trading Co. (P) Ltd.

Respondent

Procedural Posture

Civil Appeal / Supreme Court Decision on Appeal From Bombay High Court in Income Tax Reference No. 112 of 1963

Legal Issues

  1. 1 Whether the payment of 75% of profits by the assessee company to the assignor firm for assignment of sole selling agency rights is deductible under section 10(1) or 10(2)(xv) of the Indian Income Tax Act, 1922, or is capital expenditure?

Ratio Decidendi

On the finding that the assessee acquired a capital asset of an enduring nature by paying 75% of annual profits as consideration for obtaining the assignment of the sole selling agency, the payment was not deductible under section 10(2)(xv) of the Indian Income Tax Act, 1922, as it was capital expenditure. The arrangement constituted initial outlay for acquisition of a capital asset. The High Court erred in treating the payment as revenue expenditure by applying principles not generally applicable.

Court Disposition

Appeal allowed; judgment of High Court vacated.

Orders

  • Tribunal's decision to be given effect to.
  • Parties to bear their own costs before High Court and Supreme Court.