COMMISSIONER OF INCOME TAX Vs. NAYA SAHITYA

JUDGEMENT

(1.) The Income-tax Tribunal Delhi Bench) (hereinafter referred to as Tribunal has referred the following two questions to this Court, under section 66(1) of the Indian Income-tax Act, 1922 (hereinafter referred to as the Act):-

(2.) The facts relevant to the first question may briefly be stated : M/s. Naya Sahitya, Delhi, (hereinafter referred to as the assessee) is a registered firm carrying on business of publishing books. The assessee wanted to obtain recognition of the Himachal Pradesh Education Department for some of the textbooks published by it in order to enable the assessee to sell the text books in the territory of Himachal Pradesh. For this purpose, the assessee entered into an agreement with another firm, M/s. Ranbir Brothers, Kanpur, which, according to the assessee, was in a position to use its influence for obtaining recognition of the assessee's text books from the Himachal Pradesh Education Department.^ This agreement was entered into sometime in September, 1959. Under this agreement, the assessee agreed to pay 6% royalty on the net sales of such approved books in consideration for the services of M/s. Ranbir Brothers for obtaining such recognition to the assessee's text books. The assessee did obtain recognition for its text books through the good offices of M/s, Ranbir Brothers and it paid to M/s. Ranbir Brothers a sum of 5,349.00 during the accounting period relevant to the assessment year 1961-62. The assessee claimed deduction of the said amount in computing its income for the said year. The assessee's claim was rejected by the Income-tax Officer on the ground that the amount represented capital expenditure and on the same ground, the disallowance was confirmed by the Appellate Assistant Commissioner. The Tribunal, however, allowed the assessee's claim holding that it was a revenue expenditure and directed the Income-tax Officer to delete the said amount from the income of the assessee. At the instance of the Revenue, the Tribunal has, however, referred the first question to this Court under sections 66(1) of the Act.

(3.) The question, as framed by the Tribunal, would suggest that the Department did not accept that the amount of Rs. 5,349.00 was even a business expenditure in the sense that it was laid out wholly and. exclusively for the purpose of the business of the assessee. But Shri G. C. Sharma, learned counsel for the Revenue, conceded that the amount in question was a business expendtiure in the sense that it was laid out wholly and exclusively for the purpose of the assessee's business. He, however, contended that, although the amount represented a business expenditure of the assessee, yet it was of the nature of capital expenditure which was not allowable under section 10(2) (xv) of the Act.