Capital expenditure on acquiring business control is not deductible as revenue business expense under income-tax law.

Payments made under a private arrangement to obtain sole control of a business and the right to carry it on for a fixed period were held to be capital in nature. The Court reasoned that the expenditure was incurred to acquire the concern and the right to conduct the business, not to produce profits in the ordinary course of trading. Accordingly, the amounts did not qualify as expenditure laid out wholly and exclusively for business under Section 10(2)(xii) of the Income-tax Act, 1922, and were not deductible. The Court noted that a different factual basis could have led to a different result.

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Issues: Whether payments made by the assessee under a private arrangement, whereby he was to be sole in charge and owner of the firm's profits and losses for a fixed period, were admissible as deductions under Section 10(2)(xii) of the Income-tax Act, 1922.

Analysis: The arrangement, as stated by the assessee himself, showed that the payments were made in consideration of his acquisition of the concern and of the right to conduct the business for the stipulated period, rather than for the purpose of producing profits in the ordinary course of business. An expenditure incurred to acquire the right to carry on the business is capital in nature and does not fall within the statutory allowance for expenditure laid out wholly and exclusively for the purpose of business. The suggested distinction that the payments were periodic instalments or a temporary working licence did not assist the assessee on the facts admitted by him, though the Court noted that a different factual basis might have led to a different result in later years.

Conclusion: The payments were capital expenditure and were not admissible deductions under Section 10(2)(xii) of the Income-tax Act, 1922.

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