JAGDISH SAHAI J. - (1.) AT the instance of the assessee, Radha Kishan Kapoor (hereinafter referred to as the assessee), the following question of law has been submitted to us for our opinion : Whether on the facts and in the circumstances of this case the Tribunal was right in holding that the payment of Rs. 45,000 was a capital expense and hence not admissible under section 10(2)(xv) ?
(2.) THE case originally came up before a Bench consisting of R. N. Gurtu and B. Upadhya JJ., who called for a supplementary statement of the case, which having been received the reference has been put up before us for hearing. THE facts as emanating from the statement of the case and relevant for our purpose are as follows : THE assessee and his brother, Gauri Shanker Kapoor, constitute a registered partnership firm styled as Messrs. Hari Chand Kapoor and sons. This firms carried on canteen and contract business in the India Army. A partition took place between the brothers and out of seventeen contracts that they had, each got eight. With regard to the remaining one, which was a canteen shop run under the style of Irwin Stadium, New Delhi, the military authorities gave the brothers option for either of them to rum the business subject to his buying all the rights of the other. THE brothers entered into an agreement, the main clause of which was as follows : It was agreed between both the partners that in consideration of the sum of Rs. 45,000 Rai Sahib Radha Kishan Kapoor should assume control of the Irwin Stadium Canteen business. It was also provided in the agreement that Lala Gauri Shanker Kapoor would hand over the business to Rai Saheb Radha Kishan Kapoor, immediately on receipt of the sum of Rs. 45,000 which was to be paid by the moon of 9th of September 1940. The military authorities approved of this arrangement. During the accounting period relevant to the assessment years 1946-47, this sum of Rs. 45,000 paid by the assessee to his brother, Gauri Shanker Kapoor. The assessee claimed Rs. 45,000 as a business expenditure under section 10(2)(xv) of the Act. The Income-tax officer held this amount as an expense in the nature of capital, a finding with which the Appellate Assistant Commissioner and the Income-tax Appellate Tribunal concurred in the appeals field by the assessee under section 30 and 33 of the Act. We have heard Mr. D. D. Seth for the assessee and Mr. Gopal Behari for the department. Mr. Seth has contented that the payment of Rs. 45,000 was not made either to buy the goodwill for Gauri Shanker Kapoor or to buy a partner. On behalf of the department it was contented that this payment was made top Gauri Shanker Kapoor in satisfaction of his forgoing the claim to profits of the firm. The question therefore, is whether the amount of Rs. 45,000 was expended wholly and exclusively for the purpose of this business. In this connection is relevant to reproduce the provisions of section 10(2)(xv) of the Act. 10. (2) Such profits or gains shall be computed after making the following allowances, namely :........ (xv) any expenditure (not being in the nature of capital expenditure or personal expenses of the assessee) laid not or expended wholly and exclusively for the purpose of such business, profession on vocation.
(3.) WE have perused the Institute Rules, India (Army and Royal Air Force Head quarters, India 1938) which deal with military contracts and which have been made annexure to the statement of the case submitted to us by the Tribunal. These rules clearly provide that no person can run a canteen other than the one appointed by the military authorities and that the business was terminable at six months notice by the military authorities. There is thus no question of a free market and the business, is in the nature of a monopoly of the military department Consequently any ideas of competition are foreign to the real nature of the business. WE cannot, therefore, treat this payment of Rs. 45,000 to Gauri Shanker Kapoor as the amount paid to avoids competition WE are also unable to hold that his amount was paid by they assessee to buy the goodwill of Gauri Shanker Kapoor. The question of goodwill can arise only in connection with a business to carry on which a person has a right and in which continuity is excepted. Inasmuch as neither the assessee not Gauri Shanker Kapoor nor anyone else had a legal right to run the business except for the year for which they had the contract, there was no guarantee respect of the continuity of the business. There were therefore no certain prospects to earn profits. The life of the business was only one year, i.e. the period for which the contract was given, and that too subject to cancellation by notice. No one could look forward to the prospects of earning profits as of right and as we have said above there was no free market. In the circumstances, we do not see how it can be said that the sum of Rs. 45,000 was paid buy over the good will of Gauri Shanker Kapoor. Ordinarily, capital means an assure which has an element of permanency about it and which is capable of being a source of income. Capital expenditure must, therefore, normally mean an acquisition of an asset of lasting value; while income or revenue expenses are generally running expenses incurred in earning profits or expenses incurred with the primary objects of an immediately return or acquisition of assets which are not of lasting value and are likely to get exhausted or consumed in the process of the return or a very limited number of return (see Jagat Bus Service v. Commissioner of Income-tax). It appears to us that the amount of Rs. 45,000 paid by the assessee to Gauri Shanker Kapoor to the profits in the business. It appears to us therefore was invited to B. W. Nobel v. Mitchell, where the following was observed : It is a payment made in the course of business, dealing with a particular difficulty which arise in the course of the year, and was made not in order to secure an actual assets to the company but to enable them to continue, as they had in the past, to carry on the same type and high quality of business unfettered and unimperilled by the presence of one who, if the public had known about it, might have caused difficulty to their business and whom it was necessary to deal with and settle with at once. ;