Settlement payment for misuse of goodwill held capital in nature and not deductible as revenue expenditure.

A settlement payment made once and for all to resolve disputes over unlawful use of goodwill and assets, and to avert possible criminal proceedings, was treated as capital in nature rather than a recurring business outlay. Because the assessee did not show that the expenditure was incurred in the ordinary course of trading operations, it was held not allowable as revenue expenditure under the Income-tax Act, 1961, and the question was answered against the assessee.

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Issues: Whether the amount paid under the settlement was allowable as revenue expenditure under the Income-tax Act, 1961.

Analysis: The payment was made once and for all in pursuance of a settlement reached to resolve disputes arising from the unlawful use of the assessee's goodwill and assets, and to avert possible criminal proceedings. On the facts, the outlay was not shown to be a recurring business expense incurred in the ordinary course of trading operations.

Conclusion: The amount was not deductible as revenue expenditure and the question was answered against the assessee and in favour of the Revenue.

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