COMMISSIONER OF INCOME TAX Vs. MOHANLAL BROS

JUDGEMENT

(1.) THE Tribunal has referred the following question of law under s. 256(1) of the I. T. L Act, 1961 :

(2.) THE assessee is a registered from and carries on business in art silk cloth as wholesalers in Mulji Jetha Market, Bombay. The assessment year is 1965 -66 and the relevant accounting year is the Samvat year ending November 4, 1964. One M/s. Gorakhram Gokalchand (hereinafter referred to as 'M/s. G. G.') were the tenants of shop No. 582/638, Govind Gulli, Mulji Jetha Market, Bombay. On June 30, 1952, the assessee entered into an agreement with the said M/s. G. G. The agreement was in the form of a letter addressed by the assessee to the said M/s. G. G. Whereby the said M/s. G. G. were to act as the commission agents of the assessee to dispose of the assessee's art silk goods and the commission payable to the said M/s. G. G. was 2 annas per bale of Rs. 100 with a minimum commission payable being Rs. 500 per month. The further clauses in the said agreement, inter alia, purported to create a leave and licence in favour of the assessee in respect of the said shop. The purported lease and licence created was for a period of three years. M/s. G. G. were entitled to carry on wholesale business in cotton and woolen goods in the premises, and to keep sample pieces there, but they had no right to keep any stock of goods in the said premises. The assessee was to keep a deposit of Rs. 12,000 with M/s. G. G. and also to keep accounts of the commission payable to M/s. G. G. M/s. G. G. were to pay the rent and electricity charges of the shop premises. One of the clauses in the agreement then provided that the agreement was not to be construed as an agreement granting a sub -tenancy in favour of the assessee and that the assessee was not to claim any such sub -lease under the said agreement. The said clause also stated that likewise the assessee was not to claim that it was in exclusive possession of the shop premises or to seek the benefit of the Bombay Rent Act, 1947, in force. Another clause of the said agreement provided that the assessee was to finance the purchase of goods, and M/s. G. G. were not to be responsible for losses, if any. This agreement of 1952 was renewed by a fresh agreement also in the form of a letter dated June 23, 1955, on similar terms with regard to the rate of commission, etc., but with a change in the duration of the period of the agreement, this time the same being for four years from July 1, 1955, to June 30, 1959. The assessee claimed a deduction of Rs. 6,000 per year towards the payment of commission which was allowed up to June 30, 1959.

(3.) THE ITO held that the said payment of Rs. 50,000 had brought the assessee -firm a bundle of rights and, therefore, the expenses was of a capital nature. He, therefore, disallowed the claim for deduction of the said amount.