JAGAT BUS SERVICE Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) THIS is a reference by the Income-tax Appellate Tribunal, Bombay, under Section 65 (1), Income-tax Act of 1922. The assessment year in question was 1943-44 and the financial year was 1942 43. The assessee was a registered firm, Messrs. Jagat Bus Service, Saharanpur. It carries on the business of running motor cars, buses and trucks on hire. On 12th June 1940, the assessee entered into an agreement with the Tehri Durbar for plying motor vehicles on hire on the Munikireti-Dhaulsut-Deoprayag-Kirtinagar Motor Road within the territories of the Tehri Garhwal State. The agreement was for a period of five years commencing from 13th April 1940, and the assessee was given monopoly rights for plying motor car vehicles on hire on this road. Before this agreement was entered into, motor vehicles could run on this road but they were liable to pay a tax of Rs. 10 per trip per motor vehicle. Under this agreement, the assessee had to pay a sum of Rs. 20,000 annually as nazarana in the beginning of each year. The assessee was, however, entitled to a proportionate reduction should the road remain impassable for more than sixty days in any one year for the number of days exceeding sixty. The agreement further provided that the assessee had to maintain a fleet of ten buses and trucks and one car to cope with traffic requirements and that they had to arrange for further extra vehicles during the rush season. The rates chargeable by the assessee were fixed in a tariff schedule attached to the agreement and the document also provided that all servants of the State travelling on duty were to travel free. There are certain other terms contained in the agreement but they do not seem to affect the decision o the question.

(2.) THE road was not in a motorable condition for several months in the year in question and the assessee claimed proportionate reduction and instead of Rs. 20,000 the assessee had to pay a sum of Rs. 5,000 only in the year 1942-43 commencing from 13th April 1942. THE question for decision is whether the sum payable to the Tehri Garhwal State for the use of the road is in the nature of a capital expenditure and is, therefore, not deductible from the income or is in the nature of a revenue expenditure.

(3.) THE assessee employed seven trucks and one motor car during this year for about four months and there can be no doubt that if the assessee had to pay at the rate of Rs. 10 per trip the amount would have come to much more than Rs. 5,000, even if these vehicles had to make only one trip a day, I can find no clear evidence however as to how many trips each vehicle did during this period to enable me to come to a correct conclusion. In the agreement, which is in English, the assessee is called the monopolist and by the agreement it is said that a monopoly is being given to the assessee and the sum of Rs. 20,000 is the nazrana payable by the monopolist for the monopoly and the other advantages secured under the agreement. THE question, therefore, arises whether this sum of Rs. 20,000 was paid by the assessee to acquire a monopoly right which caused a substantial increase in the value of the goodwill of the company, or it was merely a sort of tax or levy made by the State for the permission to grant the use of the road; and the exclusive right of user which was given to the assessee was only an incidental part thereof.