Capital expenditure on securing a contract by eliminating competition was not deductible as business revenue outlay.

A payment made to a rival contractor to secure a contract by eliminating competition was held to be capital expenditure, not revenue expenditure, because it was incurred to acquire the contract itself and secure a profit-earning source. The court applied the principle that expenditure bringing into existence an enduring or capital advantage, or acquiring a profit-making asset, is not deductible merely because it is connected with business profits. The amount was therefore not allowable as a deduction under section 10(2)(ix) of the Income-tax Act, 1922, and the issue was answered against the assessee and in favour of the Revenue.

---

---

Issues: Whether the payment made to a rival contractor to secure the contract by preventing competition was deductible as expenditure not being in the nature of capital expenditure under section 10(2)(ix) of the Income-tax Act, 1922.

Analysis: The payment was not made for the purpose of working the contract in the course of an existing business, but to acquire the contract itself and secure the business. Expenditure incurred to obtain an advantage of enduring or capital character, or to acquire a profit-earning source, is capital in nature and is not allowable as a deduction merely because it is connected with the earning of profits.

Conclusion: The amount paid to the rival contractor was capital expenditure and was not deductible under section 10(2)(ix); the question was answered against the assessee and in favour of the Revenue.

Ratio Decidendi: A payment made to obtain a business contract by eliminating competition is expenditure to acquire the profit-making asset itself, and not expenditure incurred solely for the purpose of earning profits.

---