PREMIER AUTOMOBILES LIMITED Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) THIS reference was specially taken up for hearing today, because on the decision of one of the questions referred to in this reference depended the decision of Writ Petition No. 2759 of 1979, in which the claim for bonus made by the employees of the assessee almost twenty years back for the year 1960 61, was to be decided.

(2.) WHETHER , on the facts and in the circumstances of the case, the Tribunal was right in holding that the sum of Rs. 1 lakh out of the further payment of Rs. 2 1/2 lakhs to Automobile Products of India under the aforesaid agreement was of a capital nature and in consequently disallowing the above sum of Rs. 1 lakh ? Asst. Yrs. 1964 65 and 1965 66 :

(3.) THE facts out of which the questions in this reference arise are in a very narrow compass. A company by name Henry Meadows Limited, then an English company (hereinafter referred to as " Meadows company"), by an agreement dated March 16, 1956, granted a licence to Automobile Products of India Limited (hereinafter referred to as "API") permitting the API company to manufacture meadows engines and components thereof for a period of ten years in pursuance of the industrial policy of the Government of India by which the manufacturers of commercial vehicles were to be permitted to undertake manufacture of their own engines. The assessee decided to take up manufacture of diesel engines at a meeting held with the then Industries Minister. As part of the arrangement which contemplated that the Government of India would grant a licence to the assessee to manufacture diesel engines, an agreement was entered into firstly between the assessee and the API company dated April 29, 1961, and then between the assessee and the Meadows company dated October 5, 1962. The terms of the agreement with the API company required that the assessee should pay to the API company a sum of Rs. 24 lakhs in three instalments, the first instalment of Rs. 15 lakhs being payable on the execution of the agreement, the second instalment of Rs. 3 lakhs being payable on the expiry of twelve months from the date of execution of the agreement and the third and final instalment of Rs. 6 lakhs being payable on the expiry of twenty four months from the date of execution of the agreement. The consideration for this payment of Rs. 24 lakhs was that the API company had agreed for the cancellation of the licence dated December 9, 1955, granted by the Government of India for the manufacture of Meadows engines. This agreement also provided that the assessee was to take over the machinery, equipment, drawings, specifications and literature from the API company.