1. This is a departmental appeal. The main ground is that the AAC erred in holding that Rs. 60,000 out of Rs. 1 lakh paid by the assessee to Cambatta Industries (P.) Ltd. ('Cambatta Industries') for surrendering their Burshane gas distributionship agency was expenditure of a revenue nature and deleted the addition of Rs. 60,000 made by the ITO. There is another ground which states that the AAC erred in holding that Rs. 60,000 paid by the assessee was by way of technical fees and not expenditure laid out for acquiring the agency. It is prayed that the order of the AAC be set aside and that of the ITO be restored.
2. The assessee is a registered firm, which came into existence by a deed dated 19-12-1974. The relevant accounting period ended on 31-3-1975. This is the first year of the business of the assessee, and the business consisted of distributorship of Burshane gas for which there was an agreement dated 23-12-1974, between the assessee and Burmah Shell Oil Storage & Distributing Co. of India Ltd. There was an agreement between the assessee and Cambatta Industries.
Cambatta Industries had their business at the shop of one Mr. Hodiwala which was on leave and licence basis and that the assessee had to make its own arrangement for a show room and godown facilities. Since this was a different line of business of the assessee and that the assessee was inexperienced in this line of business, it had naturally to take the assistance, help and guidance from Cambatta Industries, which were earlier doing the business of gas supply and allied products of Burshane. Cambatta Industries had staff of about 42 persons, including three mechanics. The assessee was directed by Cambatta Industries that it could as well avail of the services of the employees of Cambatta Industries. With the help of the three mechanics from Cambatta Industries, the assessee carried on its business for which the assessee paid Rs. 60,000 to Cambatta Industries as technical fees and Rs. 40,000 for transfer of movable assets including a truck, certain fixtures and furniture, and telephones. A letter dated 4-12-1974, was written by Cambatta Industries to the partners of the assessee-firm in which it was stated that Cambatta Industries were prepared to relinquish the agency of Bombay Area No. 2 to Burmah Shell Oil Storage & Distributing Company of India Ltd., provided the terms and conditions .were agreed upon. The letter of Cambatta Industries further mentioned that it will be the responsibility of the assessee to get the agency from Burmah Shell Oil Storage & Distributing Co. of India Ltd. for Burshane gas and allied products. It is specifically mentioned 'You can directly negotiate the agency with them, provided a total consideration of Rs. 1 lakh is paid to us'. As already stated, the assessee-firm made the payment of Rs. 1 lakh to Cambatta Industries.
On going through the letter and the agreement, which were produced by the assessee at the time of the assessment proceedings, the ITO was of the view that the business had only shifted hands, and that there was nothing technical about the business of the assessee.
In para 5 of this assessment order, the ITO has stated that he did not believe that Rs. 60,000 were paid by the assessee to Cambatta Industries by way of technical fees, but it must be for some other consideration. In other words, the ITO felt that what was apparent was not real. He observed that a substantial payment of Rs. 60,000 which has been claimed in the guise of technical fees obviously could not be paid as technical fees because there was nothing of technical nature which was necessary for running of a business which was already established and which has merely changed hands from one owner to another. So this payment of Rs. 60,000 was obviously something of the nature of goodwill, may be for the business or may be for the shop premises and cannot certainly partake of revenue expenditure which could be claimed as an allowable item. In this background the assessee's claim for technical fees of Rs. 60,000 is not entertained.
Thus, the ITO disallowed Rs. 60,000 paid by the assessee to Cambatta Industries.
3. Against the order of the ITO, the assessee went in appeal before the AAC, and succeeded as the AAC held that this was a different line of the assessee's business, that the business was such which required technical assistance and that there were certain regulations to be observed by the assessee as per the agreement with Burmah Shell Oil Storage & Distributing Co. of India Ltd., for Burshane gas and some staff and their assistance were required by the assessee for running its business. Accordingly, he held that the sum of Rs. 60,000 paid by the assessee was for technical fees and, therefore, he allowed the same. The AAC further held that the ITO has not made a good case for disallowance of Rs. 60,000 as he was not sure on which count the disallowance has to be made. He has given three reasons that may be it was not for technical fees ; may be it was for the premises of Cambatta Industries or may be for the goodwill of Cambatta Industries.
Therefore, considering the totality of the circumstances, the AAC held in favour of the assessee, against which the present appeal has been filed by the department.
4. The learned departmental representative argued on the lines of the reasoning given by the ITO and stated that there is no technical assistance given by Cambatta Industries and that the expenditure was for acquiring a capital asset and, therefore, it was not of a revenue nature. Reliance was placed on CIT v. Durga Prasad More  82 ITR 540 (SC), wherein it is laid down that document can be gone into to find out the real intention of the parties. It was stated that the ITO was right in going behind the agreement and the letter of Cambatta Industries and he has rightly come to the conclusion that it was not for technical fees at all. It was also stated that real substance has to be looked into and for this purpose, reliance is placed on Jogta Coal Co. Ltd. v. CIT  36 ITR 521 (SC). It was stated that no actual services were rendered by Cambatta Industries to the assessee, and, therefore, it cannot be said that it was for technical fees.
5. Shri Vyas, on the other hand, supported the order of the AAC. He stated that what is apparent is real unless it is proved to be otherwise and the burden is upon the person who challenges the truth and in this case, it was for the department to prove that the apparent was not real, which the department has failed to do. He relied on CIT v. Daulat Ram Rawatmull  87 ITR 349 (SC) and also on page 852 of Kongo & Palkhivala's, The Law and Practice of Income-tax. It was stated by Shri Vyas that the assessee is altogether in a new business, and was not conversant with the business. The expenditure that was incurred by the assessee was incurred for running of the business for one year (sic). Reliance was placed on CIT v. Malayalam Plantations Ltd.  53 ITR 140 (SC) at page 150, and Kanga & Palkhivala's The Law and Practice of Income-tax, at page 554. Shri Vyas challenged the observations given by the ITO in para 5 and stated that the observations of the ITO are purely on surmise and speculation and without any basis, and that the ITO was not sure as to how to disallow the amount of Rs. 60,000.
6. I have heard the rival contentions and gone through the orders of the authorities below, and the compilation filed before me. At the very outset it must be made clear that the business had not changed hands at all, because the letter from Cambatta Industries dated 4-12-1974 clearly shows that it was not for relinquishing the business of Cambatta Industries, but they were advising the assessee-firm to directly negotiate for the agency with Burmah Shell Oil Storage & Distributing Co. of India Ltd., provided a total consideration of Rs. 1 lakh was paid to Cambatta Industries. In the said letter, the terms and conditions of payment have also been made. It is rather strange that the ITO has not challenged the genuineness of the payment of Rs. 60,000 to Cambatta Industries. Further, there is a letter from the assessee dated 28-9-1977 addressed to the 13th ITO, Market Ward, Bombay, stating that a sum of Rs. 60,000 was agreed to be paid to Cambatta Industries as technical fees, and that the firm had engaged their staff and the Cambattas gave guidance through their people for appointment of staff, maintenance of different registers, transport and dealing with the customers and that the fees were paid for running the business smoothly. Since it was altogether a new business of the assessee and the assessee was inexperienced in this line of business, the assessee was obliged to take assistance from Cambatta Industries for their technical knowledge and guidance, for which the assessee paid Rs. 60,000. The assessee got the agency from Burmah Shell Oil Storage & Distributing Co. of India Ltd. and there was an agreement entered into on 23-12-1974, and one of the important conditions in that agreement is Clause 10 which read as under : 10. The agent shall observe and carry out administrative and technical work as detailed in the company's 'Burshane Manual', for the time being in force, a copy of which has been furnished to the agent by the company and the agent hereby confirms and acknowledges receipt.
7. As already stated, the ITO was not very sure as to how to disallow the sum of Rs. 60,000 and he said that it was for goodwill. But in argument, it was stated by the learned departmental representative that the business of Cambatta Industries was on the decay. In that case, there cannot be the question of the goodwill.
8. Further, it was not the amount paid for getting the premises of Cambatta Industries as the letter of Cambatta Industries clearly shows that the assessee was to make its own arrangement for show-room and godown, etc., and that the assessee has not paid the amount of Rs. 60,000 for godown or show-room either. Therefore, on that count also, the order of the ITO cannot be upheld. .Therefore, I find no substance in the departmental appeal. I entirely agree with the reasoning given by the AAC, and uphold his order. Since I have arrived at the conclusion on appreciation of facts and material on record, I need not refer to the case laws relied upon by both the sides. I may only add that the ITO has not made out a good case for disallowance of Rs. 60,000 on any count.
9. In the result, the order of the AAC is upheld and the departmental appeal is dismissed.