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Commissioner Of Income-Tax vs Ashok Leyland Ltd. on 8 February, 1968 cites

A. V. Thomas & Co., Ltd., Alleppey vs The Commissioner Of ... on 25 October, 1962

In A.V. Thomas and Co. Ltd. v. Commissioner of Income-tax, [1963] 48 I.T.R. (S.C.) 67, the Supreme Court negatived the claim for deduction on the ground that, by the expenditure, the assessee company intended to acquire a capital asset for itself. In the illuminating judgment of Bhagwati J. in Assam Bengal Cement Co. Lid. v. Commissioner of Income-tax, , some broad principles of distinction were deduced by the learned judge as follows:
Supreme Court of India Cites 8 - Cited by 137 - J L Kapur - Full Document

G. Scammell And Nephew, Ltd. vs Rowles (H. M. Inspector Of Taxes). on 30 January, 1939

In G. Scammel and Nephew Ltd. v. Rowles, [1940] 8 I.T.R. (Supp.) 41, the Court of Appeal held that the termination of a trading relationship in order to avoid losses occurring in the future through that relationship, whether pecuniary losses or commercial inconveniences, is just as much for the purposes of the trade as the making or the carrying into effect of a trading agreement, and, agreeing with the view of Lawrence J., the court held that the payments made in such circumstances were made for purposes of the trade and were admissible deductions in computing the income of the payer for purposes of income-tax.
Calcutta High Court Cites 0 - Cited by 26 - Full Document

P. Orr And Sons, Madras vs The Commissioner Of Income-Tax, Madras on 28 October, 1958

In P. Orr & Sons v. Commissioner of Income-tax, [1959] 35 I.T.R. 556, Rajagopalan J., speaking for the court, held the view that such payments made to secure the termination of the managing agency and its attendant recurring annual liability to the company were not intended to bring in any capital asset, nor did it result in the acquisition of any capital asset. It was, therefore, held that the payment was not an item of capital expenditure within the meaning of Section 10(2)(xv) of the Income-tax Act.
Madras High Court Cites 4 - Cited by 8 - Full Document

Indian Copper Corporation Ltd. vs Commissioner Of Income-Tax on 17 February, 1960

21. The tests laid down in the above decided cases, though not exhaustive, are essentially illustrative, as in the ultimate analysis each case has to be decided on its own merits. In this case, the company was originally concerned with assembling Austin cars and trucks. This was only one wing of its activities, as the articles of the company were wide enough to cover a larger range of business enterprise including manufacturing and assembling of motors, trucks of whatever make they may be. Quite consistent with their scheme of activity as envisaged in the articles, the company had to necessarily engage Car Builders Limited as their managing agents. It was under this agreement large sums of moneys were payable to the agents year after year. Contemporaneous with such dealings with " Austins " through Car Builders, the company, in the light of their avowed objects to expand their field of trade, secured in the year 1951 the right to distribute, assemble and progressively manufacture Leyland trucks, etc. At or about that time, the Government of India was keen on establishing a motor manufacturing industry in India. The company's scheme found favour with the Government. But by such a scheme it became necessary for them to collaborate with Ley-lands as Austins were not interested in the same. It was at this point of time that the company resorted to terminate the managing agency of Car Builders Limited, as their continuance depended upon the continued patronage of Austins, which, as already stated, was not forthcoming. Therefore, on June 19, 1954, a resolution to terminate the managing agency agreement was passed resulting in an outgoing to the concern in the sum of Rs. 2,50,000. Thereafter, the Government of India began to whip up the programme and called upon the company to seek the financial assistance of Leylands besides technical collaboration so that the establishment of a premier motor industry in India may be a fait accompli. The Government also indicated that, in case finance from Leylands was not forthcoming, they would assist the company, provided there is no managing agent for the company. This contingency never occurred because Leylands gave the required financial assistance. But, in order to avoid any possible hurdle and primarily for purposes of business expediency, they paid the sum of Rs. 2,50,000 to the managing agents. The termination agreement dated January 29, 1955, reflects clearly the mind of the company. By such a payment, the company got rid of an onerous responsibility under the managing agency agreement, benefited financially thereby by avoiding future payments and incidentally provided for a foreseeable contingency in case Leylands were disinclined to finance the project. It is, therefore, necessary for us to consider whether the above expenditure incurred by the company can be plugged into any one of the well-laid pigeonholes categorised in the catena of decisions cited above. We are of the view that the expenditure in question did not secure a lasting or an enduring benefit to the company. It has not secured to the company anything tangible so as to form the basis for future profit earning. This was not an expense to expand the trade either. This was incurred, no doubt, once and for all but does satisfy all the attributes of circulating capital rather than fixed capital. The sum spent did not bring into existence any asset, right or privilege to run the company's future business. The money paid, though prima facie to procure the cancellation of a contract, was obviously not for the purpose of furtherance, protection and continuance of the trade. It was commercial expediency that prompted the company to pay the same and make way for the financial benefits that they may secure from the Government, in case Leylands fail to accommodate them. The payment is, therefore, to be characterised as one made to steer clear of any possible obstacle in the way of the conduct of their normal trade untrammelled by their contractual obligations with Car Builders Limited, which, if it were allowed to subsist, would be more a burden and a liability rather than an advantage. This case squarely comes within the Rules of the agency cases cited above. In the words of Lord Hanworth M.R. " the withdrawal of an agency, in the very business belonging to the principals neither creates nor destroys a business of a separate nature or an asset which is to be added to the capital account," It is not even suggested that the payment is designed and motivated. In our view, this is a normal payment made due to business exigencies. The contention that the expenditure cannot be correlated to the profits earned during the year of expense is one without force. A doctrinaire approach to the problem has to be avoided as the decision depends on an overall consideration of all the surrounding circumstances and expediency arising in each particular case. We are, therefore, satisfied that the sum of Rs. 2,50,000 expended by the company to terminate the managing agency agreement is chargeable to revenue and, therefore, an allowance deductible under Section 10(2)(xv) of the Indian Income-tax Act, 1922. The question referred is, therefore, answered in favour of the assessee and in the affirmative with costs. Counsel's fee Rs. 250.
Patna High Court Cites 9 - Cited by 19 - V Ramaswami - Full Document
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