Business expenditure treatment for compromise payments to settle a bona fide dispute was upheld as revenue in nature.

A decretal amount paid to settle a bona fide dispute arising in the course of business was treated as revenue expenditure, because the liability originated in business operations and the payment was not of a capital nature. Applying the distinction between capital and revenue outgoings, and following the principles in Travancore Sugars & Chemicals Ltd. and the assessee's earlier case, the court held that such compromise payments are deductible in computing business income. The reference was answered in favour of the assessee, and the amount was allowed as business expenditure.

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Issues: Whether the decretal amount paid by the assessee for the assessment years 1972-73 and 1973-74 was allowable expenditure in computing the income from its business.

Analysis: The question was answered in the light of the principles governing the distinction between capital and revenue expenditure and the treatment of amounts paid in compromise of a bona fide dispute arising in the course of business. Reliance was placed on the earlier view in the assessee's own case and on the principles stated by the Supreme Court in Travancore Sugars & Chemicals Ltd. v. CIT and CIT v. Travancore Sugars & Chemicals Ltd.

Conclusion: The decretal amount was held to be an allowable business expenditure and the reference was answered in the affirmative, in favour of the assessee.

Ratio Decidendi: An amount paid in compromise of a bona fide business dispute, where the liability arises in the course of carrying on the business and the payment is not of a capital nature, is allowable as business expenditure.

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