On behalf of the respondent the opposite view point was presented and it was said that the preamble to the agreement dated January 28, 1947 indicated that the purchase was number merely for the cash companysideration recited but also for the payment provided by cl.
50/ each and a fixed cumulative preferential dividend equivalent to four annas per ton of companyl raised and railed in each year.
The appellate Assistant Commissioner disallowed the claim of the appellant for deduction of this amount on the ground that it was virtually mere sharing of profits after they came into existence.
7 were number part of the purchase price of the assets.
Reference was made to cls.
The present appeal is brought, by special leave, from the judgment of the High Court of Kerala dated August 20, 1963.
Inspector of Taxes 2 and that the payment of company mission was an expenditure made in order to earn profits of the business and number an expenditure paid out of earned profits.
Appeal by special leave from the judgment and order dated August 20,1963, of the Kerala High Court in I.T.R. Case No.
For the purpose of this clause net profits means the amount for which the Companys audited profits in any year are assessed to Income tax in the State of Travancore.
42,480/ by the assessee to the Travancore Government under the agreements dated 1 5 I.T.C. 363.
Rao Bahadur Rajyasevanirata N. Kunjan Pillai Avl.,
At the instance of the respondent the Tribunal referred the following question of law to the High Court of Kerala Whether on the facts and in the circumstances of the case, the payment of Rs.
Clause 4 a provided that the cash companysideration for the sale of the Government Distillery shall be arrived at as a result of joint valuation by the Engineers to be appointed by the parties.
Clause 5 a stated that the cash companysideration for the sale of assets of the Government Tincture Factory shall be the value according to the books.
In companysideration of this, the companypany agreed to pay a companymissioner to the vendor at the rate of four annas per ton of steam and rubble companyl and three annas per ton of slack companyl raised from the companyliery and sold and rented by the companypany from the companyliery.
For the assessment year 1958 59 the companyresponding previous year being May 1, 1956 to April 30, 1957 the amount payable to Government under the aforesaid cl.
42,480/ was number capital expenditure but was expenditure of revenue nature which was allowable under s. 10 2 xv of the Act.
In addition to selling these asssets the Government undertook obligations enumerated in cls.
324 of 1965.
T. Desai, S. K. Iyer and R. N. Sachthey for the respon dent.
The Judgment of the Court was delivered by Ramaswami, J. The appellant is a limited companypany incorpora ted under the Travancore Companies Regulation and is carrying on business, in the State of Kerala,of manufacturing sugar, running a distillery and also a tincture factory.
It was companytended that the appellant agreed to make annual payments to Government in companysideration of these obligations.
7 came to Rs 42,480/ .
Subsequently it was found impossible to pay to the vendor a fixed dividend and therefore a fresh agreement was executed tinder which the vendor agreed to give up all the dividends to which he was entitled and to permit the companypany to companyvert the preference shares into ordinary shares.
CIVIL APPELLATE JURISDICTION Civil Appeal No.
It was also agreed that the vendor should be paid the Minimum annual dividend of four annas for every ton of companyl raised from the companyliery and if there was any deficit in any year the companypany would make up such deficit, Under the draft Articles of Association of the companypany the vendor was to get, in respect of the companysideration for shares, 500 preference shares or Rs.
7 of the said agreement provided for futher payments as folows 7 .
The appellant preferred an appeal against the order of the appellate Assistant Commissioner to the Income tax Appellate Tribunal which held that the case came within the principle of the decision in British Sugar and Manufacturers Ltd. v. Harris.
4 b and c and 5 b already referred to.
irrespective of any loss or gain to the companypany.
Chief Secretary to Government acting for and on behalf of the said Government of His Highness the Maharaja of Travancore of the one part and Sir William Wright, Kt.,
Under cl.
K. Sen, G. L. Sanghi, and B. R. Agarwala, for the appel lant.
2 1939 I.T.R. 101.
In this view the High Court felt it unnecessary to go into the merits of the respondents companytention that the payment represented only a division of profits.
It was pointed out that the annual payments under cl.
Apart from the cash companysideration referred to in the agreement, cl.
For this purpose an agreement dated June 18, 1937 was entered into between the Government of Travancore and Sir William Wright on behalf of Parry Co. Ltd., the Promoters of the appellant company.
Clause 3 of the agreement provided that the cash companysideration for the sale of assets of the Travancore Sugars Ltd. shall be 3 .25 lakhs rupees.
Under cl.
3, 4 a and 5 a of the agreement and it was said that separate and full companysiderations were provided for the purchase of the assets of Travancore Sugars Ltd., the Government Distillery and the Government Tincture Factory.
10 the Government was entitled to numberinate a director on the Board of Directors of the appellant companypany who would number be entitled to any voting power or to interfere with the numbermal management of the companypany.
The appellant company was floated with a veiw to taking over the business assets of a companypany called Travancore Sugars Ltd. which was being wound up and in which the State Government held the largest number of shares , the Government Distillery at Nagercoil and the business assets of the Government Tincture Factory at Trivandrum.
16 of 1962.
Reference was made to the following portion of the preamble of the agreement dated January, 28, 1947.
Under the said agreement the assets of all the three companycerns were agreed to be sold by the Government of Travancore to the appellant companypany.
The appellate Assistant Commissioner relied upon the decision in The Pondicherry Railway Company C.I.T. 1 in disallowing this item of expenditure.
The assessee company was incorporated and the formal agreement of sale was entered into between it and the vendor.
WHEREAS on 18th June 1937 an agreement here inafter called the principal agreement was entered into between M. R. Ry.
The vendor approved the draft articles and in a letter stated that he should get four annas per ton permanently on all companyls despatched from the companyliery every year, without any hindrance whatsoever.
In the result the Tribunal allowed the appeal by the Company.
