Pathak, J. - (1.) THE Income-tax Tribunal has referred the following question for the opinion of this court : " Whether, on the facts and in the circumstances of the case, the sum of Rs. 7,200 has been rightly considered as capital expenditure ? "
(2.) THE assessee is a partnership firm. It owns a cinema, known as the Neel Kamal Talkies at Bijnore. THEre is another cinema house at Bijnore known as the Virendra Talkies. It was run by M/s. Prakash Talkies Distributors, Delhi. THE assessee entered into an agreement with M/s. Prakash Talkies Distributors under which it was agreed that in consideration of the assessee's paying a sum of Rs. 600 per month for a period of 5 years to M/s. Prakash Talkies Distributors, the latter would not exhibit any film at Virendra Talkies. In the assessment proceedings under the Income-tax Act, 1961, for the assessment year 1964-65 (the relevant accounting year being the calendar year ending on the 31st December, 1963) the assessee claimed a deduction of Rs. 7,200 paid during the year to M/s. Prakash Talkies Distributors under the aforesaid agreement. The Income-tax Officer and the Appellate Assistant Commissioner rejected the claim, holding the amount to be capital expenditure. Thereafter, the Income-tax Appellate Tribunal upheld the decision of the Income-tax Officer and the Appellate Assistant Commissioner. At the instance of the assessee, the Tribunal has now made this reference? It is clear that the agreement entered into between the assessee and M/s. Prakash Talkies Distributors is one which has the effect of elimin ating competition so far as the assessee is concerned. Under it M/s. Prakash Talkies Distributors is prohibited from exhibiting any films at Virendra Talkies for a period of five years. There are several decisions laying down that payment made in order to eliminate competition is of the nature of capital expenditure.
(3.) AS long ago as Atherton v. British Insulated and Helsby Cables Ltd., [1926] A.C. 205 ; [1925] 10 T.C. 155 (H.L.)., it Was pointed out that expenditure may be treated as capital expenditure when it is made not only once and for all but with a view to bringing into existence an asset or advantage for the enduring benefit of the trade. In ASsam Bengal Cement Co. Ltd. v. Commissioner of Income-tax, [1955] 27 I.T.R. 34, 45; [1955] 1 S.C.R. 972 (S.C.). the Supreme Court observed : " The question however (whether expenditure is capital or revenue) arises for consideration where expenditure is incurred while the business is going on and is not incurred either for extension of the business or for the substantial replacement of its equipment...... If the expenditure is made for acquiring or bringing into existence an asset or advantage for the enduring benefit of the business it is properly attributable to capital and is of the nature of capital expenditure. If on the other hand it is made not for the purpose of bringing into existence any such asset or advantage but for running the business or working it with a view to produce the profits it is a revenue expenditure." It is not necessary that the words " permanent " or " enduring " refer to an advantage which will last for ever. That was made clear by Latham C.J. in Sun Newspapers Ltd. and Associated Newspapers Ltd. v. Federal Commissioner of Taxation, 61 C.L.R. 337 at 355. : In Assam Bengal Cement Co. Ltd. the Supreme Court said that the right of an assessee to carry on its business unfettered by any competition, from outsiders within the area was in the nature of a capital asset. The Supreme Court pointed out that it was not a part of the working of the business bat went to appreciate the whole of the capital asset and make it more profit-yielding. In acquiring this advantage, the assessee was regarded as acquiring an enduring advantage and, therefore, the expenditure was of a capital nature. ;