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Rao Bahadur R. Guruswamy Naidu Udumalpet Vs. the Commissioner of Income-tax, Madras - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtChennai High Court
Decided On
Case NumberCase Referred No. 14 of 1949
Judge
Reported inAIR1952Mad864; [1952]21ITR188(Mad); (1952)IIMLJ29
ActsIncome-tax Act, 1922 - Sections 10(2)
AppellantRao Bahadur R. Guruswamy Naidu Udumalpet
RespondentThe Commissioner of Income-tax, Madras
Appellant AdvocateM. Subbaraya Aiyar, Adv.
Respondent AdvocateC.S. Rama Rao Sahib, Adv.
Excerpt:
- .....of palaniappa chettiar in the managing agency firm of bhagyalakshmi & co. was properly treated as capital expenditure.'2. the assessee is one of the partners of bhagyalakshmi & co. who are the managing agents of palani andavar mills ltd. the remuneration of these managing agents consisted of a monthly payment of rs. 1000 and a percentage commission on various items. there were four partners, g. t. venkataswami naidu and bros., palaniappa chettiar, the assessee and venkatasubba naidu. their shares were six annas, five annas, two annas six pies and two annas six pies respectively. the assessee purchased the interest of palaniappa chettiar in the managing agency firm for a consideration of a sum of rs. 1,14,000 paid by him to palaniappa chettiar. in the assessment year he claimed that that.....
Judgment:

Satyanarayana Rao, J.

1. The Income-tax Appellate Tribunal, Madras Bench, have referred to us for decision under Section 66 of the Income-tax Act the following question: 'Whether on the facts and in the circumstances I of the case, the payment of Rs. 1,14,000 by the assessee for the purchase of the interest of Palaniappa Chettiar in the managing agency firm of Bhagyalakshmi & Co. was properly treated as capital expenditure.'

2. The assessee is one of the partners of Bhagyalakshmi & Co. who are the managing agents of Palani Andavar Mills Ltd. The remuneration of these managing agents consisted of a monthly payment of Rs. 1000 and a percentage commission on various items. There were four partners, G. T. Venkataswami Naidu and Bros., Palaniappa Chettiar, the assessee and Venkatasubba Naidu. Their shares were six annas, five annas, two annas six pies and two annas six pies respectively. The assessee purchased the interest of Palaniappa Chettiar in the managing agency firm for a consideration of a sum of Rs. 1,14,000 paid by him to Palaniappa Chettiar. In the assessment year he claimed that that amount should be deducted as a revenue expenditure and should not be treated as a capital expenditure. This contention was negatived by the revenue authorities and at his instance the question stated above was referred to us.

3. On the facts as stated above the answerthat we should give to the question does notadmit of any serious doubt. It is not a casewhere any fresh capital was put into the partnership with a view to increase its profits. Theassessee purchased for its exclusive benefit theinterest of Palaniappa Chettiar, one of the partners who owned a five annas interest in thepartnership. For acquiring that asset which wasa profit yielding one he had to expend thisamount. It is in the nature of capital expenditure for acquiring a profit yielding asset. Insuch circumstances, it is impossible to acceptthe contention strenuously pressed on behalf ofthe assessee by Mr. Subbaraya Aiyar, hislearned advocate, that it is really in the natureof a revenue expenditure. We think that theview taken by the revenue authorities is correctand that the question referred to us must beanswered in the affirmative and against theassessee. The assessee should pay the costsof the Commissioner of Income-tax which wefix at Rs. 250.


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