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Commissioner of Income-tax Vs. Natwarlal Mohanlal and Co. - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtMumbai High Court
Decided On
Case NumberIncome-tax Reference No. 64 of 1966
Judge
Reported in[1976]105ITR748(Bom)
ActsIncome Tax Act, 1961 - Sections 37(1)
AppellantCommissioner of Income-tax
RespondentNatwarlal Mohanlal and Co.
Appellant AdvocateR.J. Joshi, Adv.
Respondent AdvocateS.E. Dastur, Adv.
Excerpt:
direct taxation - deduction - section 37(1) of income tax act, 1961 - whether payment made by assessee firm to widow of deceased partner was admissible deduction in computing of assessee firm - object or purpose for which payment was agreed to be made by continuing partners to widow of deceased partners under agreement - payment was in consideration of use of share and interest of deceased partner in quota right that was made available to continuing partners - since such user merely enabled continuing partnership to have necessary facility to purchase their stock in trade in which they were dealing - purpose of expenditure not to acquire capital assets of enduring nature - payment made to widow of deceased partner comes within revenue expenditure - held, it was allowable deduction. -.....tulzapurkar, j.1. the question that has been referred to us for our determination by the tribunal at the instance of the commissioner of income-tax runs as follows :'whether, on the facts and in the circumstances of the case, the payment of rs. 1,800 made by the assessee-firm to the widow of the deceased partner was an admissible deduction in computing the income of assessee-firm for the assessment year 1963-64 ?' 2. the question relates to the assessment year 1962-63. the corresponding accounting period being s.y. 2017 (october 21, 1960, to november 8, 1961) and it arises in these circumstances : the assessee, m/s. natwarlal mohanlal & co., is a registered firm carrying on business of importing and dealing in cloves, dry fruits and kirana. it also deals in shares. the firm originally.....
Judgment:

Tulzapurkar, J.

1. The question that has been referred to us for our determination by the Tribunal at the instance of the Commissioner of Income-tax runs as follows :

'Whether, on the facts and in the circumstances of the case, the payment of Rs. 1,800 made by the assessee-firm to the widow of the deceased partner was an admissible deduction in computing the income of assessee-firm for the assessment year 1963-64 ?'

2. The question relates to the assessment year 1962-63. The corresponding accounting period being S.Y. 2017 (October 21, 1960, to November 8, 1961) and it arises in these circumstances : The assessee, M/s. Natwarlal Mohanlal & Co., is a registered firm carrying on business of importing and dealing in cloves, dry fruits and kirana. It also deals in shares. The firm originally consisted of four partners, Natwarlal Mohanlal, Kanji Champsey, Chimanlal Vadilal and Harilal Mohanlal, and these partners were carrying on the aforesaid business on terms and conditions contained in a deed of partnership executed on May 27, 1954. According to this deed. Natwarlal had 7 annas share, Kanji had 3 annas share, Chimanlal had 2 annas 6 pies share and Harilal had 3 annas 6 pies share, According to the deed the trade name, goodwill and tenancy rights, etc., were to belong 'absolutely to Natwarlal Mohanlal and Harilal Mohanlal and no other partner shall have any rights thereto'. On August 18, 1962, Kanji Champsey died. It appears that the firm had a number of import quotas and licences for import of dates and other commodities in which the firm dealt. On the death of Kanji Champsey the other three partners continued to carry on this business and a fresh deed of partnership was entered into on September 23, 1961 (giving effect to the deed as and from August 19, 1961), Kanji Champsey having died on August 18, 1961. Under this new deed Natwarlal was given 50% share, Chimanlal Vadilal was given 25% share and Harilal Mohanlal was given 25% share in the profits of the firm. Clause 15 of this new deed of partnership provided that Smt. Gunvantibai Kanji for herself and as mother and natural guardian of her children as the legal representatives of late Kanji Champsey had relinquished their right to the import licences and/or quota rights as were held by the said old firm and that the parties to the document (meaning the three partners) shall during the subsistence of the partnership be entitled to the import licences and/or quota rights and such further and other allied licences and rights as may thereafter be acquired by them in connection with the business of the firm. Obviously, Gunvantibai Kanji was not a signatory to this deed. The same having been executed by the three partner who continued the business in partnership. It appears that under paragraph 78 of the Import Trade Control Policy for the licensing period, October, 1961 to March, 1962, which had been published by the Government of India (popularly known as the Red Book it had been provided that where the established importer was a partnership firm and if any partner died the remaining partners would be granted the entire quota of the old firm if it was so provided in the partnership agreement of if the new firm produced evidence off relinquishment of rights in its favour by the legal heirs of the deceased partner. In other words, the entire quota of the old firm would be granted to the new firm if it was proved that there was relinquishment of the right to the quota by the legal heirs of the deceased partner and in the absence of such relinquishment the share which the deceased partner possessed in the quota of the old firm would be excluded from the quota of the new owners of the business and the legal heirs of the deceased partner would be recognised as the established importers in respect of the share of the deceased. Probably it was in view of this provision which was contained in paragraph 78 found in the Red Book containing the Import Trade Control Policy of the Government that clause 15 in the new partnership deed dated September 23, 1961, was accordingly worded. However, a further agreement was entered into on November, 24, 1961, between the three partners of this new firm and Bai Gunvanti. widow of Kanji Champsey, for herself and as mother and natural guardian of the minor children of the deceased and husband of one of the married daughters of the deceased and by this agreement it was provided that in consideration of the relinquishment of the said quota rights the continuing partners agreed to pay to the said Bai Gunvanti for self and on behalf of all the heirs of the deceased partner, as and by way of consideration for the acquisition and use by the continuing partners of the share and interest of the said late Kanji Champsey as one of the partners of the old firm, a sum of Rs. 600 per month for and during the period of five years with effect from August 19, 1961. In other words, relinquishment by Bai Gunvanti and other heirs of the deceased's share, right and interest in the quota rights of the old firm in favour of the continuing partners and payment of consideration therefor to Bai Gunvanti were clearly recorded in this agreement. Pursuant to this arrangement and agreement between the parties sum of Rs. 600 per month was paid to Bai Gunvanti by the assessee-firm and for the three months which fell during the accounting period being S.Y. 2017 a sum of Rs. 1,800 was paid which was claimed by the assessee as a deduction in computation of the assessable income of the firm for the assessment year under consideration. The Income-tax Officer by his letter dated January 10, 1963, made enquiries of the assessee-firm as to the basis for the payment made and as to the details regarding the unexecuted licences and quotas and how the lady, having relinquished her rights for the quotas. Would be entitled to the payment as per the agreement dated November 24, 1961. The assessee by its letter dated January 24, 1963 furnished all the information that was sought by the Income-tax Officer. On a consideration of the material that was placed before him the Income-tax Officer took the view that since in the new deed of partnership it had been recited that Bai Gunvanti had relinquished all rights in the import quotas there was no basis for fixing the amount of Rs. 600 per month to the widow and, therefore, the payment was made ex gratia to her. He, therefore, disallowed the deduction of Rs. 1,800 in computing the assessable income of the assessee. In the appeal that was preferred to the Appellate Assistant Commissioner, it was contended on behalf of the assessee that the payment that was made to Bai Gunwanti was not any ex gratia payment made to her, nor was it by way of a capital expenditure, but it was merely for user of the rights to quotas and licences which had accrued to the legal representatives of the deceased partner, the Appellate Assistant Commissioner did not accept the contention of the assessee. He took the view that the payment was made for the outright acquisition of the share of the deceased partner in the quota rights which had accrued to the legal representatives and that, therefore, the payment was not wholly and exclusively incurred for the purposes of the assessee's business, but the same was on capital account. Being dissatisfied with the decision of the Appellate Assistant Commissioner the assessee preferred a second appeal to the Appellate Tribunal, it was contended for the assessee, inter alia, that the payments was neither an ex gratia payment made to the widow of the deceased partner of the old firm, nor was it for acquisition of the rights but was for user of the rights to quotas and licences which had accrued to the legal representatives. The Tribunal took the view that the new partnership deed dated September 23, 1961, which contained clause 15 pertaining to relinquishment of the rights by the legal representatives of the deceased partner in the quota rights, etc., and the agreement dated November 24, 1961 that was entered into between the continuing partners on the one hand and Bai Gunwanti on the other. Were part and parcel of one and the same transaction; that the recitals pertaining to relinquishment of the share in the quota rights, etc., on the part of the legal heirs of the deceased partner contained in both the documents were for the purpose of satisfying the requirements of the Import Trade Control Policy particularly paragraph 78, and that in substance the continuing partners merely obtained the user of the entire quotas and licences and that it was really a case where the lady had permitted user by the continuing partners of the share and interest of the deceased in the firm inclusive of quota rights and licences and, therefore, the payment represented a revenue expenditure and the deduction claimed was allowable. The Tribunal considered the three decisions reported in V.N.V. Devarajulu Chetty and Co. v. Commissioner of Income-tax, Vithaldas Thakordas & Co. v. Commissioner of Income-tax and M. S. Kandappa Mudaliar v. Commissioner of Income-tax, and principally relying upon the decision of the Madras High Court in the last mentioned case it held in favour of the assessee, that the expenditure could be allowed as a deduction. At the instance of the Commissioner of Income-tax, therefore, the question set out at the commencement of this judgment has been referred to us for our determination.

3. Mr. Joshi appearing for the revenue has contended before us that if regard was had to the relevant clauses which re to be found in the new deed of partnership dated September 23, 1961, as well as the agreement dated November 24, 1961, it was clear that this was case where there was clear relinquishment of the quota rights by Bai Gunwanti, the widow, acting for herself and the other heirs of the deceased partner in favour of the continuing partners-rather it was a case where there was a transfer of the deceased's share, right or interest in the quota rights in favour of the continuing partners and since such share or interest in the quote rights had been in terms acquired by the continuing partners for being used in their business, the payment that was provided for in the agreement dated November 24, 1961, was for acquisition of such share, right and interest in the quota rights and, as such, the payment made should be regarded as being in the nature of capital expenditure incurred by the new firm. He pointed out that though in n earlier decision of this court in the case of Jagannath Prabhashankar Joshi v. Varadkar a view was taken that a quota right represented by an import quota certificate issued by the Chief Controller of Imports and Export under the Imports and Exports (Control) Act, 1947, was not a property which was transferable in law. That view has not been upheld by the Supreme Court in the case of Joint Chief Controller of Imports and Exports v. Aminchand Mutha, and the Supreme Court by a majority judgment has taken the view that quota allotted to an established importer firm to import certain things under a licence issued to it could be divided between the partners on the dissolution of the quota-holder firm. He, therefore, urged that in the light of this view expressed by the Supreme Court it should be clear that quota rights will have to be regarded as some asset or interest in property belonging to an established importer and if that were, having regard to the operative part of the agreement dated November 24, 1961, it must be held that the payment which the continuing partners agreed to make to Bai Gunwanti, the widow of the deceased partner, would be for the acquisition of the share and interest of the deceased partner in the licences and quota rights by the continuing partners. He principally relied upon the following three recital which occur in the agreement and the operative part contained in paragraph 2 of the agreement. The relevant recitals run thus :

'AND WHEREAS the parties hereto of the other part as the legal representatives of the said late Kanji Champsey haves relinquished their right to the import/export licences and/or all other quota rights as were held by the said old firm wherein the said late Kanji Champsey was one of the partners AND WHEREAS the continuing partners have become entitled to the import/export licences and/or all other quota rights and other allied licences and rights in connection with the business of the said partnership firm AND WHEREAS in consideration of the relinquishment of the said rights the continuing partners have agreed to pay to the said Bai Gunwanti, widow of the late Kanji Champsey, for self and on behalf of all the parties hereto of the other part a sum of Rs. 600 per month for the period hereinafter mentioned for the acquisition and use by the continuing partners of the share and interest of the said late Kanji Champsey as a partner in the said partnership firm in the said import/export licences and all other quota rights on the terms and conditions agreed upon by the between them.'

4. The operative part contained in paragraph 2 of the agreement is as follows :

'In pursuance of the said agreement and in consideration of the premises aforesaid the continuing partners do and each of them both hereby agree to pay to the said Bai Gunwanti, widow of the late Kanji Champsey, for self and on behalf of all the parties hereto of the other part as and by way of consideration for the acquisition and use by the continuing partners of the share and interest of the said late Kanji Champsey as one of the partners in the said partnership firm, a sum of Rs. 600 per month for and during the period of five years with effect from August 19, 1961.'

5. Laying considerable emphasis on the expression 'for the acquisition and use' occurring both in the recitals as well as the operative part of the agreement Mr. Joshi contended that a payment which the continuing partners agreed to make to Bai Gunwanti for herself and the other legal heirs of her deceased husband who was a partner in the old firm, was nothing but a payment agreed to be made for acquiring the share and interest of her deceased husband in the import/export licences and quota rights belonging to the old firm and if the payment was for making acquisition of such rights, the payment would partake the nature of capital expenditure. As regards the three decisions which were considered by the Tribunal. he pointed out that two of the decisions were really not relevant to the point at issue and even the third decision which pertained to payment having been made for acquiring quota rights by the continuing partners was also a case where under the document in question the continuing partners had merely acquired the use of the quota rights and had not made any acquisition of the rights s such. He, therefore, contended that none of the decisions to which a reference had been made by the Tribunal was of any assistance for determining the question which we are called upon to consider and having regard to the language employed in the new partnership deed dated September 23, 1961, as well as the agreement dated November 24, 1961, the payment of Rs. 1,800 which was made by the assessee to Bai Gunwanti for the three months during the accounting period should be held to be of a capita nature and should not be allowed as a deduction in computing the assessable income of the assessee.

6. On the other hand, Mr. Dastur, appearing for the assessee, has contended that if the substance of the transaction as represented by the two documents, namely, the new deed of partnership dated September 23, 1961, and the agreement dated November 24, 1961, was looked at, it would appear clear that what the continuing partners did under the transaction was not acquisition of any new or further right, but the firm represented by the continuing partners was merely maintaining whatever rights it had before the death of Kanji Champsey. He disputed that quota rights are capital assets and further disputed that any capital assets were acquired as such by the continuing partners by the arrangement in question. He contended that after all a quota right in nothing but a right or an advantage which the holder thereof has which enables him to apply for and obtain import licence of certain value (being so percentage of the quota of the basic year) for the commodities to which the quota right in the case of established importers-this is a case of an established importer-merely enables them to obtain their stock-in-trade and, therefore, the expenditure that was incurred by the assessee-firm could not be regarded as having been incurred for acquiring any capital asset of an enduring character; be, therefore, asserted that the Tribunal was right in holding that under the agreement Bai Gunwanti and the other heirs had merely permitted the use of the share, right and interest of the deceased partner in the quota rights belonging to the old firm to the continuing partners so as to enable them to get their stock-in-trade and as such the expenditure incurred in that behalf was business expenditure of revenue expenditure. He urged that the object or purpose for which the expenditure had been incurred would go to determine the question whether the expenditure would be of a capital nature or of a revenue nature and in that behalf he relied upon a decision of the Privy Council in Mohanlal Hargovind v, commissioner of Income-tax. He naturally laid considerable stress upon the decision of the Madras High Court in M. S. Kandappa Mudaliar's case . Facts of which case were almost similar to the facts obtaining in the instant case.

7. It is true that the question whether the particular expenditure was of a capital nature or of a revenue nature, which arose in the case of Vithaldas Thakordas & Co. v. Commissioner of Income-tax and in the case of Devarajulu Chetty & Co. v. Commissioner of Income-tax arose in the context of altogether different sets of facts as pointed out by Mr. Joshi. In the former case the facts were these : One V was carrying on bullion business. After his death this business was taken over by a firm. The firm entered into an agreement with the widow of V for the use of V's name of their bullion business. Under an agreement, in consideration of the widow having agreed to allow the partners to use the name of V for the purpose of the partnership business the partners agreed to pay to her out of the net profits of the business in the first instance an amount equivalent to two annas in the rupee of the net profits. After such payment was made the balance of the profits was to be divided amongst the partners of the assessee-firm. A sum of Rs. 5,050 was paid during the year under consideration to the widow and was claimed as a deduction by way of business expenditure. This court held that the said sum paid to the widow was not an appropriation of the profits of the partnership after they had been ascertained, that the arrangement was not in the nature of a joint venture or a quasi-partnership, but that the payment was a revenues expenditure wholly and exclusively incurred for the purposes of the business, and was admissible for deduction under section 10(2)(xii) of the Act. In terms this court observed :

'The agreement between the firm and Bai Tarabai (the widow) is a simple one and all that the partnership is doing is paying an amount fixed by reference to profits as a fee or charge for the use of the goodwill granted to it by Bai Tarabai.'

8. In other words, obviously this court took the view that the payment to the widow was made for the use of V's name for their bullion business. In the other case, the Madras High Court had to consider the nature of payment of a sum of Rs. 18,911 made in the following circumstances. A firm of five partners started a wholesale business in piece-goods in September, 1940. In October, 1942, two of the five partners retired from the firm and the three surviving partners thereafter carried on the business under the same name and style, but as a new firm. Each of the outgoing of the old was paid a certain sum for his share of the assets and profits of the old firm up to the date of dissolution as the result of an arbitration award. This settlement was subject, however, to a reservation of the rights of the two retiring partners in respect of certain forward contracts for the purchase of piece-goods from abroad that had already been entered into by the old firm but the deliveries under which had not been effected. In September, 1943, the new firm, the assessee, took delivery of the goods and sold them at a considerable profit. In accordance with the direction of the arbitrators the new firm paid the two old partners a sum of Rs. 18,911 in respect of their interest in the goods and their share of profits realised by the sale of the goods. The old partners then executed a deed of release in favour of the new firm in March, 1944. The new firm was assessed to income-tax for the year of account ending March 31, 1944, in the sum of Rs. 45,088 which included the sum of Rs. 18,911 paid to the old partners in respect of the goods arrived under the forward contracts. The Madras High Court while allowing the deduction took the view that part of the profits payable to the old partners by the new firm was paid under an obligation imposed by law, i.e., more or less by an overriding title. The court also approached the problem from a different angle, namely, that the payment of Rs. 18,911 was really part of the price paid by the new firm to acquire full exclusive title to the goods from the old partners and that the goods so acquired were nothing but the stock-in-trade of the new firm which sold the goods and thereby made a larger profit. It would, therefore, be correct to say that the question whether the payment was of a capital nature or of a revenue nature arose in different sets of facts which obtained in the two aforesaid decisions.

9. However, in our view, the decision of the Madras High Court in the case of M. S.Kandappa Mudaliar v. Commissioner of Income-tax was on facts which were similar to the ones which are obtaining in the instant case. It was a case which dealt with the question as to whether the payments which were made for the use of quota rights were to be regarded as revenue expenditure or not. The facts were these : Four persons entered into a partnership for trading in cotton, yarn and piece-goods, and when the trade was subjected to control the firm obtained the prescribed quotas from time to time to carry on its export trade. One of the partners retired from the firm on February 5, 1944, and the firm was reconstituted under the same trade name with the surviving three partners as the continuing partners. The new firm entered into an agreement on April 14, 1944, with the partner who has retired, that until the said partner who had retired could obtain a separate quota the firm was to 'buy the entire quota goods and use it for their business and as recompense for the same, pay the partner who had retired in accordance with the prevailing conditions'. In accordance with this agreement the firm paid to the retired partner Rs. 13,500 and Rs. 10,000 during the accounting years 1944-45 and 1946-47, and claimed that these amounts should be deducted from their taxable profits. The claim was disallowed by the lower authorities on the ground that the payments were of a capital nature. On the terms of the agreement the court took the view that under the agreement with the retired partner nothing was laid out b the assessee-firm on the acquisition of any asset of an enduring nature with the aid of which the firm could earn its profits; it was not not even a case of acquisition of any fresh quota rights, as the assessee-firm had its quota rights and was bound to get its quota till the authorities allocated the quota between the assessee and the retired partner and what the assessee greed to pay was for the use of the quota with which the assessee could obtain its stock-in-trade for export till the retired partner was allocated his separate quota, and the amounts paid to the retired partner under the agreement were, therefore, not of a capital nature and were allowable under section 10(2)(xv) of the Act. It is true as has been pointed out by Mr. Joshi that on the construction of the agreement in question the court undoubtedly came to the conclusion that what the assessee had agreed to pay to the retired partner was for the use of the quota with which the assessee could obtain its stock-in-trade till the retired partner was located his separate quota, but the Madras High Court has further gone on to express its view on the alternative position that even if it were regarded as case where the assessee-firm had acquired the quota rights of the retired partner and in that behalf this is what the court has observed at page 318 of the report :

'Even had it been a case of the assessee-firm acquiring the quota rights of Sabapathy - and we have held that factually it was not a case of such acquisition - the expenditure would not have been of a capital nature........The quota itself, it should be remembered, is not a marketable commodity, though we have earlier referred to the transaction as a purchase of quota rights. It was really a case of a payment made for the use of the quota issued to another. The export itself had to be in the name of the trader who holds the quota. The quota all through stands in the name of the person in whose name it was issued. Even had Sabapathy been allotted special quotas, and the assessee paid him money for the use of these quotas, the payment would still have been of monies laid out by way of addition to the price of the goods purchased by the assessee for export.' A little later the court has further observed (page 319) :

'As what the assessee undertook to pay was for the use of the full quota including what would eventually be allotted to Sabapathy, what the assessee paid Sabapathy was really an addition to the price of the goods that the assessee firm purchase for export to Ceylon on the basis of the quotas issued to the assessee-firm. Such payment came within the principle laid down by this court in V. N. V.Devarajulu Chetty and Co. v. Commissioner of Income-tax and, as we pointed out above, the Assistant Commissioner was right in applying that principle.'

10. It would thus be seen that, even proceeding on the basis that the assessee-firm had acquired the quota rights of the retired partner, in that case the Madras High Court took the view having regard to the real nature of the quota rights and the advantages earned by the quota-holder, that the payments made by the firm to the retired partner were really in the nature of business expenditure or revenue expenditure, for, in substance, the assessee-firm had laid out the moneys by way of addition to the price of the stock-in-trade purchased by the assessee for export. The facts in the case before us are almost similar to the facts which obtained in the aforesaid Madras case. Admittedly, under the original deed of partnership dated May 27, 1954, there was nothing specifically mentioned about the quota rights or the licences which were obtained or were to be obtained by the firm. Under clause 6 of the original deed the provision merely was that trade name and goodwill and tenancy rights, etc., of the firm shall belong absolutely to the two partners, Natwarlal Mohanlal and Harilal Mohanlal, and that no other partner shall have any rights thereto. In other words, in the absence of any specific provision pertaining to quota rights and licences the firm had the benefit of the quota rights and the licences and each partner had a share or right or interest therein. In other words, the firm as such was entitled to make full use of the entire quota rights and licences. On the death of Kanji Champsey an arrangement seems to have been made between the three continuing partners and the widow of the deceased partner, for herself and the other heirs of the deceased partner of the deceased partner, that the three continuing partners would be permitted to make use of the quota rights and licences entirely including the share and interest of the deceased partner in such quota rights and licences and this arrangement was evidenced by the agreement dated November 24, 1961, that was entered into between the three continuing partners and the deceased partner's widow, Bai Gunwanti. Prior to the making of this agreement on November 24, 1961, a new deed of partnership dated September 23, 1961, was entered into by the three continuing partners which contained clause 15 which related to the relinquishment of the share and interest of the deceased partner, Kanji Champsey, by his widow, Bai Gunwanti, for herself and on behalf of the other legal heirs in favour of the continuing partners. It is true that the agreement dated November 24, 1961, contains recitals as well as operatives part, particularly clause 2 thereof, which record relinquishment by Bai Gunwanti as the widow for herself and on behalf of the other heirs of late Kanji Champsey, of the deceased partner's right to import and export licences and all other quota rights in favour of the continuing partners and further record that in consideration of such relinquishment of the said rights the continuing partners had agreed to pay to Bai Gunwanti for herself and on behalf all the other heirs of the deceased Kanji Champsey a sum of Rs. 600 per month for the period specified therein for the acquisition and use by the continuing partners of the share and interest of the deceased Kanji Champsey in the import/export licences and all other quota rights held by the old firm, but if the real nature of the quota rights and the type of the benefit thereunder received by the holder thereof the taken into account, it would appear clear that in substance what Bai Gunwanti did was to permit the continuing partners the use of her deceased husband's share and interest in the quota rights held by the old firm enabling the continuing partners to obtain import licences for the commodities to which the quota related, that is to say, to secure or obtain for themselves the stock-in-trade in which the new firm was to deal in the course of its business. Even if the expression 'for the acquisition and use' occurring in the relevant recitals and the operative part of the agreement dated November 24, 1961, is given its proper meaning, in effect what the continuing partners obtained was the use of the share and interest of the deceased partner in the quota rights which were held by the old firm which enabled the continuing partners to apply for and obtain the necessary import licences to import stock-in-trade in which the continuing partners were dealing. It was not disputed before us that the import licences and quota rights were held by the old firm as established importers and the acquisition and use of the deceased partner's share and interest in the said quota rights which was obtained by the continuing partners was also as established importers, which, in other words, means that by acquiring such share and interest in the quota rights of the deceased partner all that the continuing partners really acquired was an advantage whereby they could apply for import licences for the commodities to which the quota rights related, under which the stock-in-trade could be imported and dealt with by them in the course of their business. It was for acquiring and using such benefit of the quota rights that the payment was agreed to be made by the continuing partners to Bai Gunwanti. Moreover, it cannot be disputed that the value of the import licences which the continuing partners would be entitled to obtain by reason of such acquisition of the quota rights of the deceased partner would depend upon the import policy that may be declared by the Government of India for the relevant period, the period in the instant case being from October, 1961, to March, 1962. In other words, under the arrangement that was made by the continuing partners with the widow of the deceased partner, the continuing partners could not be said to have acquired any capital asset or advantage of an enduring or permanent nature. On the other hand, the acquisition was in respect of the benefit of the quota rights to which the deceased partner was entitle on the basis of which the continuing partners could obtain import licences on the strength of which the continuing partners were enabled to purchase their stock-in-trade. The circumstances under which clause 15 in the deed of partnership dated September 23, 1961, came to be incorporated were explained by the assessee in its letter dated January 24, 1963, and it had been explained that clause was incorporated in the new partnership deed for the satisfaction of the licensing authorities in compliance with the provisions contained in paragraph 78 of the Red Book. It was in view of this explanation which was accepted by the Tribunal that the Tribunal took the view that though the expression 'relinquishment of rights' was used in the deed, the arrangement in fact was that Bai Gunwanti would permit the user of the licences and quotas in return for payment of Rs. 600 per month for the period specified in the agreement to be made by the continuing partners to her. Having regard to these facts which obtain in the instant case, it is clear to our mind that the object or purpose for which the payment was agreed to be made by the continuing partners to Bai Gunwanti under the agreement dated November 24, 1961, was that the payment was in consideration of the user of the share and interest of the deceased partner in the quota rights that was made available to the continuing partners and since such user merely enabled the continuing partners to have the necessary facility to purchase their stock-in-trade in which they were dealing, the purpose of expenditure was clearly not to acquire an capital asset of an enduring nature. In this view of the matter, we are of the view that the Tribunal was right in coming to the conclusion that the payment of Rs. 1,800 that was made during the three months falling within the accounting period of Samvat year 2017 was in the nature of revenue expenditure and was an allowable deduction in computing the assessable income of the assessee.

11. The question is, therefore, answered in the affirmative and in favour of the assessee. The revenue will pay the costs of the assessee.

12. Question answered in the affirmative.


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