Revenue expenditure for exclusive use of goodwill distinguished from capital purchase of goodwill in partner death payment

Payment made to the heirs of a deceased partner was examined to determine whether it was a revenue expense or capital outlay for acquisition of goodwill. The partnership had not been dissolved and continued with the surviving partners after the partner's death; the later payment secured only the firm's exclusive use of goodwill and did not transfer ownership of that goodwill. On that reasoning, the amount was treated as allowable revenue expenditure rather than consideration for purchase of goodwill.

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Issues: Whether the sum of Rs. 32,500 paid to the heirs of a deceased partner was allowable as revenue expenditure, or whether it represented capital outlay for purchase of goodwill.

Analysis: The partnership had not been dissolved and continued with the remaining partners after the death of the partner. On the facts, the payment was made long after the death and secured only the exclusive use of the firm's goodwill to the exclusion of the heirs of the deceased partner. The transaction did not transfer ownership of goodwill; it merely secured the right to use it exclusively.

Conclusion: The amount was allowable as revenue expenditure and not as consideration for purchase of goodwill, so the issue was decided in favour of the assessee and against the Revenue.

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