Lump-sum employee welfare payment held capital expenditure because it secured an enduring hospital benefit, not a revenue deduction.

A lump-sum payment made under a settlement to secure hospital treatment for non-covered employees at no cost or concessional cost for an indefinite period was held to be capital expenditure. Although incurred in the course of business and prompted by commercial expediency, the true character of the payment was determined by the enduring advantage obtained: it created a benefit analogous to fixed capital and relieved a recurring liability. On the facts, there was no mere reimbursement of annual business expense and no revenue liability of the kind needed for deduction under section 37(1) of the Income-tax Act, 1961.

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Issues: Whether the sum of Rs. 50,000 paid under the settlement for the workers' hospital was admissible as a deduction under section 37(1) of the Income-tax Act, 1961, or was capital expenditure.

Analysis: The expenditure was incurred in the course of business and was motivated by commercial expediency, but its true character had to be determined by the nature of the advantage obtained and the manner of the payment. The payment was a one-time lump sum made as an initial outlay to secure for the assessee's non-covered employees the benefit of hospital treatment at no cost or concessional cost for an indefinite period. The payment not only relieved a recurring liability but also created an advantage of enduring benefit analogous to fixed capital. On the facts found, there was no mere reimbursement of annual business expense and no incurred liability of such character as to make the payment revenue in nature.

Conclusion: The amount of Rs. 50,000 was capital expenditure and was not allowable as a deduction under section 37(1) of the Income-tax Act, 1961.

Ratio Decidendi: A lump-sum payment made to secure an advantage of enduring benefit for an indefinite period, even if commercially expedient and related to employee welfare, is capital expenditure and not deductible as revenue expenditure.

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