COMMISSIONER OF INCOME TAX Vs. GEORGEPOLOUS

JUDGEMENT

(1.) ONE Georgepolous was carrying on business in the export of hides and skins. It was his sole proprietary concern. On December 11, 1964, a firm of four partners (hereinafter called the "assessee-firm") purchased this business for Rs. 50,000. Under the terms of purchase, the assessee-firm was entitled to carry on the business of export from where Georgepolous left off. In other words, the take-over by the assessee-firm was of the concern as a whole including goodwill, trade-mark and import and export quota rights as well as the trade outstandings and trade debts.

(2.) SUBSEQUENT to the take-over of the business and the carrying on of the business by the partnership concern, some of the foreign buyers, to whom goods had been earlier supplied by the erstwhile sole proprietor, found that deliveries to them had been under short-measurement. When this came to the notice of the firm which purchased the undertaking as a going concern, they came forward to settle the claims of the foreign buyers. The claimants included the U. S. SR. Trade Representative and two firms in the U. S. A. The payments made by the firm towards meeting the claims by these foreign customer amounted in all to Rs. 1,28,384. This amount was paid by the firm in the account year ended December 31, 1965. In their relevant assessment to income-tax for the year 1966-67 the firm claimed the payment of Rs. 1,28,384 as a business outgoing. The ITO rejected the claim and added back the amount while making the assessment. This assessment was confirmed in appeal by the AAC. The assessee appealed further to the Tribunal. The Tribunal held that the amount paid was an item of business expenditure wholly and exclusively incurred by the assessee-firm for the purpose of their business. The Tribunal further held that the expenditure was not of a capital nature.

(3.) THE learned standing counsel then urged that these payments made by the assessee-firm to the U.S.S.R. Trade Representative and the two American firms were not made in discharge of any liability of the assessee's own, either contractual or otherwise. He pointed out that the claims of these purchasers arose out of short deliveries effected by Mr. Georgepolous at a time when the business was that individual's sole proprietary concern. THE learned counsel accordingly urged that the liability to answer the claims of these buyers, if at all, would be only that individual's as the then proprietor of the business. THE point which the learned counsel wished to make was that it was not necessary for the purposes of the assessee's business, either under contract or under any other legal obligation, to discharge the claims made by its predecessor's buyers. Since there was no legal necessity for the payment, the money laid out, according to the standing counsel, cannot be allowed as the assessee-firm's own expenditure in business.