Annual profit-linked payment under asset transfer agreements treated as revenue expenditure and allowed as a business deduction.

A contractual annual payment to the Government, made under agreements transferring profit-earning assets, was treated as revenue expenditure rather than capital expenditure. The payment was not part of a fixed capital price, had no terminal point, and was linked to annual profits under the commercial arrangement, showing that it was an obligation attached to the business's profit-making structure. On that construction, the amount was also regarded as an admissible deduction, whether characterised as an overriding charge at source, a revenue outgoing, or expenditure laid out wholly and exclusively for business purposes. The deduction was therefore allowable in computing business profits.

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Issues: Whether the annual payment made by the assessee to the Government under the agreements was capital expenditure or revenue expenditure and, if revenue expenditure, whether it was deductible in computing business profits.

Analysis: The payment was not part of any fixed capital price for the assets transferred. It was linked to the annual profits of the business, had no fixed terminal point, and arose from the contractual conditions attached to the transfer of the profit-earning assets. On the construction of the agreements and the surrounding commercial arrangement, the payment was treated as an obligation attached to the profit-earning structure of the business rather than as an outlay for acquiring the capital assets. The Court further held that, whether viewed as an overriding charge at source, as a revenue outgoing, or as expenditure laid out wholly and exclusively for the purposes of business, the amount fell within the admissible deductions.

Conclusion: The payment was revenue expenditure and was allowable as a deduction; the assessee's claim succeeded and the revenue's objection failed.

Final Conclusion: The contractual payment to the Government was deductible in computing the assessee's business income, and the appeal was dismissed.

Ratio Decidendi: A payment made under a business acquisition arrangement, which is not a fixed part of the capital price but is an incident of the profit-earning operations and is linked to annual profits under the terms of transfer, is deductible as revenue expenditure and not disallowed as capital expenditure.

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