Capital expenditure treatment for liability assumed on acquisition of a going concern bars revenue deduction.

Payment made to settle an ex-employee's claim linked to a proprietary business acquired as a going concern was treated as capital expenditure, because the liability arose from the acquisition arrangement and represented discharge of an assumed vendor liability rather than a cost incurred in the assessee-company's ordinary business operations. The tribunal therefore held that the amount was not deductible as revenue expenditure and upheld the disallowance.

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Issues: Whether the sum paid to an ex-employee pursuant to a decree, in settlement of liability attached to the proprietary business taken over by the assessee-company, was deductible as business expenditure or was capital expenditure.

Analysis: The assessee-company had acquired the proprietary concern as a going concern and, under the sale agreement, taken over its assets and liabilities. The liability to the ex-employee arose from a claim relating to the earlier proprietary business and was settled after the takeover pursuant to the decree. As the payment flowed directly from the scheme of acquisition and represented discharge of an assumed liability of the vendor's business, it was not an expenditure incurred in the ordinary course of the assessee's own business operations.

Conclusion: The payment was capital in nature and not allowable as a revenue deduction; the disallowance was upheld.

Final Conclusion: The assessee was not entitled to deduct the amount claimed, and the appeal failed.

Ratio Decidendi: A payment made to discharge a liability of a business acquired as a going concern, where the liability is part of the acquisition arrangement, is capital expenditure and not deductible as business expenditure.

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