Commissioner Of Income-Tax vs Mandovi Hotel Pvt. Ltd. on 30 August, 2005
13. Jalan's (supra), upon which strong reliance is placed by the learned Counsel for the revenue, cannot be applied to the facts of this case. In that case neither the assessing officer nor the Appellate Authority nor the Appeal Tribunal nor the High Court went into the question whether the assessee was in fact a separate firm, and independent of, the partnership firm. The exact position was not investigated, nor any finding recorded. Even otherwise, as has been repeatedly held by the Supreme Court whether an expenditure is allowable as revenue or capital expenditure, has to be decided on the facts of each case. In the facts and circumstances of the present case, the agreement between the parties as is discerned from the Dissolution Deed, it can safely be said that payment of 30% of net profits payable by the assessee company to the retiring partners for a period of seven years subject to the minimum payment of Rs. 60,000/- was related to annual profits that flow from the business activities of the assessee company and the said payment cannot be related to the capital value of the assets. The Dissolution Deed does not specify any capital sum payable to the retiring partners. The payment of 30% of the annual profits, subject to minimum of Rs. 60,000/- every year for seven years, cannot be held to be the fixed price for purchase of the capital assets. All in all, the expenditure in the sum of Rs. 1,34,678/- by the assessee in the relevant year cannot be said to have been wrongly held by the Appellate Tribunal as revenue expenditure.