Revenue expenditure test for competitor-exclusion payments: outlay held deductible as business expense, not capital investment.

Payments made under an oral, temporary and terminable arrangement with a rival exporter were treated as revenue expenditure because they did not create any asset, monopoly, trading right or enduring advantage in the assessee's favour. The outlay was incurred to exclude competition for the time being and facilitate the carrying on of trade in a more convenient and profitable manner, so its real character was business expenditure in the course of trade. Accordingly, the payments were allowable as a deduction under section 10(2)(xv) of the Indian Income-tax Act, 1922.

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Issues: Whether the payments made by the assessee to its rival exporter under the arrangement were capital expenditure or revenue expenditure deductible under section 10(2)(xv) of the Indian Income-tax Act, 1922.

Analysis: The arrangement was found to be oral, temporary and terminable at will, and it did not create any asset or enduring advantage in the assessee's favour. The payments were not made once and for all to acquire a monopoly or a trading right, nor did they bring into existence any fixed capital advantage. They were made to secure short-term commercial by excluding a competitor for the time being and facilitating the carrying on of the Burma coal trade in a more convenient and profitable manner. Applying the settled distinction between capital and revenue expenditure, the real character of the outlay was held to be business expenditure incurred in the course of trade.

Conclusion: The payments were revenue expenditure and were allowable as a deduction under section 10(2)(xv) of the Indian Income-tax Act, 1922; the reference was answered in favour of the assessee.

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