Expenditure incurred solely for the purpose of earning: payments assumed on acquisition characterised as acquisition consideration, not deductible.

Whether one-fourth of commissions payable to third parties under agreements assumed on acquisition of an agency business qualifies as expenditure "incurred solely for the purpose of earning" business profits under Section 10(2)(ix). The analysis treats the obligation as an assumed liability arising from the purchase of the agency right, independent of profit generation, and not a payment to creditors for services rendered in carrying on the business. As such the payments are characterised as consideration for acquisition rather than revenue outgoings incurred solely to produce profits, and the deduction is disallowed.

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Issues: Whether amounts equal to one-fourth of the commissions paid by the managing agent to third parties pursuant to agreements assumed on acquisition of the agency business are deductible as expenditure "incurred solely for the purpose of earning" the assessee's profits or gains under Section 10(2)(ix) of the Income-tax Act.

Analysis: The Court examined the character of the payments in light of Section 10(2)(ix) and distinguished prior authorities where sharing followed the earning and ascertainment of profits. It found that the obligation to pay the one-fourth share arose from the appellants' undertaking on acquiring the agency business and was independent of whether profits were made. The payments were not made in the process of earning profits, were not payments to creditors for goods or services rendered in the conduct of the appellant's business, and were liabilities assumed as consideration for acquiring the right to conduct the business rather than outlays made solely for the purpose of producing profits in the business.

Conclusion: The claimed deduction under Section 10(2)(ix) is not allowable; the payments are not expenditure incurred solely for the purpose of earning the profits or gains of the business (decision against the assessee).

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