Managing agency termination payment treated as revenue expenditure and allowed as a business deduction.

Payment made to terminate an onerous managing agency arrangement was treated as revenue expenditure and therefore allowable as a business deduction. The payment was incurred because the existing agency had become commercially inconvenient and carried recurring liabilities, and it was directed to the conduct of the assessee-company's existing trade. As it did not bring into existence any new asset, right, privilege, or other enduring capital advantage, and was not connected with the initiation or expansion of a new business, it was not capital expenditure.

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Issues: Whether the payment of Rs. 2,50,000 made for termination of the managing agency was an allowable deduction in computing the assessee-company's total income.

Analysis: The payment was made to terminate an onerous managing agency arrangement which involved recurring liabilities and had become commercially inconvenient in the changing business structure. The arrangement did not bring into existence any new asset, right, or privilege of an enduring character, nor did it constitute expenditure for the initiation or expansion of a new business. On the facts, the payment was prompted by business expediency and was directed to the conduct of the existing trade rather than to acquisition of capital advantage. The expenditure was therefore treated as falling on revenue account and within the class of deductible business outgoings.

Conclusion: The payment was an allowable deduction and was not capital expenditure.

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