Capital expenditure on terminating a managing agency was not deductible because the payment secured an enduring business advantage.

A lump-sum payment made to terminate a managing agency and secure relief from future obligations was treated as capital expenditure because it brought an enduring advantage to the company. The Court distinguished payments made in the ordinary course of business to save recurring working expenses, holding that the true character of the outgoing depends on the nature of the benefit obtained, not on the payment's form or commercial expediency. On the facts, the amount was not deductible as revenue expenditure under section 10(2)(xv) of the Indian Income-tax Act, 1922.

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Issues: Whether the sum of Rs. 6,00,000 paid on termination of the managing agency was deductible as revenue expenditure under section 10(2)(xv) of the Indian Income-tax Act, 1922, or was capital expenditure.

Analysis: The payment was made to bring the managing agency to an end and to secure the company a lasting advantage by ing it of the future obligations arising under the agreement. The Court distinguished cases where compensation was paid in the ordinary course of business to save recurring working expenses and relied on the principle that an expenditure which brings into existence an advantage of enduring nature is attributable to capital and not revenue. On the facts found by the Tribunal, the transaction was bona fide, but the character of the outgoing was determined by the nature of the advantage obtained, not by the form of the payment or its lump-sum character.

Conclusion: The payment was capital expenditure and was not an allowable deduction under section 10(2)(xv); the answer was against the assessee and in favour of the revenue.

Ratio Decidendi: A lump-sum payment made to terminate a managing agency and secure an enduring advantage by removing a continuing liability is capital expenditure and not deductible as revenue expenditure, even if the transaction is commercially expedient.

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