COMMISSIONER OF INCOME-TAX, MADRAS versus M/S. ASHOK LEYLAND LTD.

Citation: [1973] 2 S.C.R. 516 · Decided: 03-10-1972 · Supreme Court of India · Bench: K.S. HEGDE · Disposal: Dismissed

Judgment (excerpt)

516 
·COMMISSIONER OF INCOME-TAX, MADRAS 
v. 
M/S. ASHOK LEYLAND LTD. 
October 3, 1972 
(K. S. HEGDE,.P. JAGANMOHAN REDDY AND·J. D. DUA, JJ.] 
lnco111e ftcc-Payn1e_nr 
of co111penwllio11 
for tern1i11ati11g 
111anagi111: 
aJ:e1u~,·-Ct1pital or Rf•\!c'1111e exp£•tuliture. 
The asscssec-company (respondent) was initially doing the business of 
assembly and sale of Austin cars <1nd Leyland 
trucks. 
It 
appointed 
Managing Agents under certain terms regarding office allowance and 
commission. 
In 1954, the respondent ceased to assemble Austin 
cars 
·in view of the decision of the 
Govcr.r.mcnt and engaged itsclf in the· 
manufacture of Leyland commercial vehicles. The progress of the scheme 
was reviewed in 1955 ahd the Government <if India suggested to the res-
pondent that Leyland, U.K., should provide part of the cap.ital. that the 
_remaining capital should be raised by the respondent ir. India and that the 
Government would arrange for such capital in India on condition that the 
managing agency was 1 :ll>olished. The respondent terminated the managin~ 
agency and paid·a sum of money to the Managing Agents as compensation. 
The respondent lalso entered into an agreement with Leyland, U.K. for 
panicipation. The respondent claimed deduction of the amount 
paid 
~1s compensation to the Managing Agents. in its asscs.~mcnt. as revenue 
expenditure laid out wholly a:nd exclusively 
for the 
p.urpose of 
the 
business io the relevant previous year. 
The Income-tax Officer and 
Appellate Assistant Commissioner rejected the claim but the Tribunal anJ 
the High Court, on reference, held in favour of the asses.sec. 
Dismissing the appeal ro this Court. 
HEl~D : The managing agency was termin<:A:c<l on husincs.li considerat-
ions and as n matter of commercial expeJicnc·y. In view of the ch-ange in 
t.iusiness activity. the continuance ·Of the managing agents had become 
superfluous. 
1t is lrue that hy tcrmi_n:iting the services of Managing 
Agents, whose continuance haJ become superftuous, the respondent not 
only savcJ cxJ'<'nso that it woµIJ have had to incur in the relev~nt previm« 
vcar hut also for a few .more years to come. 
But the payment w:-.• made 
(..,nlv with a view to save husiness expenditure and' it will not he correct 
to sav that hy avoiding cenain busines.• 
expenditure 
the 
respondent 
acquii-cd an enduring benefit or acquired an 
irtcome 
vielding 
as'tet. 
Therefore. the expenditure was a revenue expenditure, anJ not a capital 
expenJi•ure. [5ZOA-D; 5!3C-El 
8.W. Noh/" Li111ir1•cl v. Milcliel/, 11 Tax Cas. 372, A1l1<'rlo11 v. British 
/1"11/a1e1/ a11d He/sh\• C<1hl<'.• LtJ.-. 10 T.C. 192, Anglo Ptrslon o;/ l.td. 
v. Dt1/e, 16 Tax Cas.'253, G. Sca111111el/ 11111/ Nephew Lttl. v. Row/e.r. t 1940) 
1.T.R. Supp. 41 and AnRlo-Pf!rsian Oil Co . .(/nc/ia) Ltd. v. Con1111i.\'.'iiOn(•r 
"! /11r1>me-t11x. (1933) Vol. I l.T.R. 129. referred to. 
CIVIL APPELLATE· JURISDICTION: Civil Appeal No. 1989 of 
1969. 
. 
Appeal by certificate from the judgment and order dated 
February 8. 1968 of the Madras High Court in Ta~ Case No. 93 
of 1964. 
A 
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B 
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C.I.T. V • • ASHOK LEYLAND LTD. (Hegde;. J.) 
517 
B. Sen, B. D. Sharma and R. N. Sac/11/iey, for the appellant. 
S. Swaminathan, D. P .. Mohanthy and S. Gopa/akrisluum, for• 
the respondent. 
The Judgment of the Court was delivered by 
HEGDE. J. The Commissioner of Income-tax, Madras 
ij; 
appealing against the decision of the Madras High Coun in a. 
Ref~rence under s. 66(2) of the Indian Income-tax Act, 1922 (to• 
he hereim1fter referred to as the Act) after obtaining certificate of 
fitness from the High Court. 
The question before the authorities under the Act was whether· 
the payment of Rs. 2,50,000/- made by the respondent-asse~ee· 
which will hereinafter be referred to as the 'company' for the· 
termination 'of managing agency is an allowable <lcduetion in com-
puting the total income of the company for 1956-57. The Income-
tax Officer as well as the Appellate Assistant Commissioner reject-· 
c<l the claim of the Company that it was a Revenue expenditure 
but the Tribunal in appeal upheld the contenion of the Company. 
Aggrieved by the decision of the Tribunal, 
the Commissioner· 
<lem:inded a case to be stated for obtaining the opinion of the· 
High Court on the question : 
"Whether on the facts and in ihe circum>tanc,s:s of 
the case the payment of Rs. 2,50,000/- made for the 
termination of Managing Age11cy is an allowabl

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