M. K. BROTHERS (P) LTD . versus C.I.T. KANPUR

Citation: [1973] 1 S.C.R. 1077 · Decided: 29-08-1972 · Supreme Court of India · Bench: K.S. HEGDE · Disposal: Dismissed

Judgment (excerpt)

) • 
A 
M. K. BROTIIERS (P) LTD . 
v. 
C.I.T. KANPUR 
August 29, 1972 
1077 
B 
[K. S. HEGDE, P. JAGANMOHAN RE.ODY AND H. R. KHANNA, JJ.] 
c 
D 
E 
J' 
G 
H 
lncom11-tax Act (11 of 1922)-Amount due to company from Its sole 
selling agerl.t-Llability undertaken by appellant to pay amount in consi-
deraio11 of its appointment as sole selling agent-If Capital or revenue 
expenditure. 
in 1955, a large amount was due to a corporation from a. firm which 
was then its oole selling agent. As a result of an agreement between the 
appellant, the corporati>Jn, and the firm, the appellant undertook to dis-
charge the liability of the firm in consideration of its being appointed the 
S<,lle selling agent in place of the firm. 
In 1956, an indenture was execut· 
ed by the corporation and the appellant relating to the appointment of the 
appellant as &Jle selling agent, and in thi; indenture, it was agreed ·that 
the corporation should be authorised to retain an amount equal to 1 /7 
of the trade discount due to the sole selling agents with a minimum of 
RB. 50,000 a year, for discharging the liability, so that, the amount payable 
to the sole selling agents would be the amount payable as trade discpunt 
minus the aforesaid amount retained by the corporation. 
Clause 13 of 
the indenture provided that the selling agents shall have no claim what-
soever to any such amounts retained out of the normal trade discount 
and adjusted in the account of the firm as if the amount so retained was 
not payable to them. 
For the assessment year 1956-57, out of the com-
mission payable to the appellant "' selling agents the corporation retained 
a sun1 under the contract for adjustment against the outstanding dues of 
the firm. 
The appellant, in its statement of acco,,qt, credited the f~ll 
arr.•)unt of commission to its profit and loss acC'ount, and the sum retained 
by the oprporation was shown as a deduction therefrom. The Department, 
the Appellate Tribunal and the High Court on reference, disallowed the 
deduction on the ground that it was a capital expenditure and not a 
revenue expenditure an~ held that the amount was liable to tax. 
Dismissing the appeal to this Court. 
HELD : (1 ) The answer to the question whether the money paid was 
a revenue expenditure or· capital expenditure does aot depend upon whether 
the an1ount paid is large or small or whether H was paid in a lumpsum or 
by instalments. It depends upon the purpose for which the payment had 
been made and the expenditure incurred. If the object of making the 
payment is 1P acquire a capital asset the payment would partake of the 
character of a capital payment even though it is not made in a lumpsum 
but by instalments over a period of time. If any such asset or advantage 
for the enduring benefit of the business is thus acquired or brought into 
existence it would be immaterial whether the source of the payment was 
ca11itat or t~ income of the oondlrn or whether the payment was made 
once for all m was made periodically. 
On the contrary, payment made 
ifl the cour e of and for the _purpose of carrying on business or ~rading 
activity would be revenue expenditure ever: t~1ough the -pa)'."ment 1s o~ a 
large amount and ·was not to be made penod1cally. The aim and ob1ect 
20-L 1728 ipCl/73 
1078 
SUPREME COURT REPORTS 
[1973] 1 S.CH 
ef the expenditure would determine the character of the 
expenditure 
whether it is a. capital expenditure or a revenue expenditure. The source 
or ihe manner of the payment would then be of no consequence. fl08Z 
C-HJ 
Assan1 Bengal Ceme_nt Co. Ltd. v. Commissioner of Income Tc.x, West 
Bengal [19551 27 I.T.R. (34 on p. 45) and P. B. Divecha (Deceased) 
and After I-lint His Legal Representatives and Another v. Commis~oner 
of Income Tax, Bombay City I [1963) 48 I.T.R. 222, followed. 
(2) In the present case, the appellant got the sole 'elling agency ia 
oonsiaeration of its agreeing to pay the amount which \vas then due from 
the firm to the corporation. If the appellant paid the amount ih a lump 
sum in consideration of its being appointed the sole selling agent the pay• 
ment t.vould have constituted c'.apital expenditure as it was an amount 
paid for acquiring or bringing into existence an asset or advantage for 
the enduring benefit of the business. The fact that the amount was paid 
not in a lump sum but was paid in instalments through deductions out of 
the commission due to the appellant would not make any difference. 
[1082A.Q 
(3) Even

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