KHEMCHAND MOTILAL JAIN Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) THIS is a reference under S. 256(2) of the IT Act, 1961 ('the Act'), at the instance of the Revenue and the following question of Law has been raised for answer of this Court::

(2.) RESPONDENT is a newly formed private company brought into existence w.e.f. 1st Jan., 1982. It has taken over the business of the firm Khemchad Motilal Jain. This firm was disclosed on 31st Dec., 1981. It is engaged in the manufacture of bidis. For the asst. yrs. 1986-87 and 1987-88, the assessee had paid a sum of Rs. 22,91,728 and Rs. 24,66,746 to the rest while partners of the dissolved firm. This amount was claimed by way of royalty to the partners at the rate of 10 paise per thousand bidis. The assessees, in their P&L A/c, claimed this amount as revenue expenditure. The assessee had also claimed the same deduction in the earlier years. This payment was made by the assessee to the erstwhile partners in lieu of trademark and goodwill which the assessee was using for doing the business.

(3.) ON appeal, the CIT (A) confirmed the view taken by the AO. Thereafter the Tribunal allowed the appeal, set aside the order of the CIT (A) and relying on the decision given in case of CIT vs. M.B. Umbrella Industries (1984) 39 CTR (MP) 62 : (1984) 145 ITR 292 (MP), held that the price and paid amounts to revenue expenditure and liable to be deducted in computing the total income of the assessee. Against this order, the Revenue approached the Tribunal for stating the case, but the application was rejected on the ground that this case is covered by the decision of this Court in M.B. Umbrella Industries case (supra). Hence, the Revenue approached this Court under S. 256(2), for calling statement of the case.