- (1.) This is an appeal by special leave against the order of the High Court of Allahabad dated September 26. 1969 on a reference made to it by the Income-tax Appellate Tribunal, Allahabad Bench. The facts giving rise to the present appeal may be briefly summarised as follows; The appellant assessee is a public limited company known as J. K. Cotton Manufacturers Ltd. and the matter in dispute relates to the assessment year 1944-45. The appellant entered into an agreement with the firm called Juggilal Kamlapat and employed the said firm as the Managing Agents of the Company. The agreement was executed on August 8. 1941 and the Managing Agents were to work for the Company for a period of 20 years and were to charge commission at the rate of 2 1/2%. About two years later the appellant decided to terminate the agreement executed in favour of Juggilal Kamlapat and the said Managing Agents readily accented the offer made by the appellant as a result of which a deed of release was executed by the Managing Agents Juggilal Kamlapat on September 28. 1943. Under the release the appellant agreed to pay a sum of Rs. 2,50,000/- to the outgoing Managing Agents by way of compensation for terminating the agreement much earlier than stipulated under the original contract. The appellant, however, employed another firm, namely. J. K. Commercial Corporation as their new Managing Agents and executed an agreement in their favour on September 30. 1943. The action of the Company was approved by the Board of Directors.
(2.) The dispute in the instant case centres round the question as to whether the compensation of Rs. 2,50,000/-paid to the outgoing Managing Agents was a capital or a revenue expenditure incurred by the appellant. The stand taken by the assessee before the revenue was that as the expenses were incurred wholly and exclusively for the purpose of carrying on the business of the Company it would fall under Section 10 (2) (xv) of the Income-tax Act. 1922. which is the same as Section 37 (1) of the Income-tax Act, 1961, and therefore an allowable deduction under the aforesaid provision. The appellant's case was negatived by the Income-tax Officer, the Appellate Assistant Commissioner and also by the Tribunal. The Tribunal also refused to make a reference to the High Court as in its opinion no point of law arose. The appellant then approached the High Court of Allahabad which directed the Tribunal to make a reference on the following four points and accordingly the Tribunal made a reference to the High Court on those points: "1. Whether there was any material on the basis of which the Appellate Tribunal could hold that the goodwill of Juggilal Kamlapat Cotton Manufacturers Ltd., was transferred to the J. K. Cotton Manufacturers Ltd. 2. Whether there was any material on the record for a finding that the said transfer had been for a sum of Rupees 1,00,000/- or for any other sum, and 3. Whether there was any material on the record from which it could be held that the land had appreciated in value from Rs. 49,526/13/6 to Rs, 1,00,000/-. 4. Whether a sum of Rs. 2,50,000/- paid by the assessee to the Managing Agents for the termination of their Managing Agency is an expenditure admissible under Section 10 (2) (xv) of the Income-tax Act." When the matter was heard by the High Court, the assessee did not press any other point excepting point No. 4 which related to the question whether a sum of Rs 2,50,000/- paid by the assessee to the outgoing Managing Agents was an admissible expenditure under Sec. 10(2) (xv) of the Income-tax Act, 1922. The High Court by its judgment dated September 26. 1969 held that the expenditure in question was incurred wholly and exclusively for the purpose of assessee's business, but as the amount was in the nature of a capital expenditure it was not deductible under the provisions of the Income- tax Act and hence this appeal before us by special leave.
(3.) Mr.Ashoke Sen learned counsel for the appellant has submitted two points before us in support of his case. In the first place it was contended that the High Court having held that the expenditure incurred was wholly and exclusively for the purpose of the business should have held that Section 10(2)(xv) applied in terms and therefore, the expenditure was a revenue expenditure which would be deductible under Section 10 (2) (xv) of the Income- tax Act; and secondly, it was error in not correctly applying the decision of this Court in Godrej and Co. v. Commr. of Income- tax, Bombay City 37 ITR 381 = (AIR 1959 SC 1352 ).;