Revenue expenditure test: commission and termination compensation for recurring business obligations were held deductible.

Commission paid for procuring raw materials was revenue expenditure because it was incurred for services rendered in the course of trading operations and did not create any capital asset or enduring advantage. Compensation paid to terminate the recurring commission arrangement was also revenue expenditure because it merely released the assessee from a continuing business liability and did not bring into existence a new asset or lasting benefit. Longstanding revenue acceptance of the same treatment, without any change in facts, supported the deduction. Both amounts were therefore allowable as deductions.

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Issues: Whether the commission of Rs. 18,597 paid to Prabhu Dayal Agrawal and the compensation of Rs. 70,000 paid for terminating the agreement were allowable as revenue expenditure.

Analysis: The payment of commission was found to have been made for services rendered in procuring raw materials for the assessee's business, and not for acquiring any capital asset or enduring advantage. The payment was linked to the trading operations of the company and to annual profits, with no relation to the capital value of its assets. The compensation paid for terminating the recurring commission agreement merely freed the assessee from a continuing revenue liability and did not bring into existence any new asset or advantage of enduring benefit to the business. The earlier acceptance of the nature of the payments by the revenue over a long period also supported the conclusion, there being no change in facts to justify a different view.

Conclusion: Both amounts were revenue expenditure and were deductible.

Ratio Decidendi: A payment that is incurred to meet recurring business obligations or to secure services for the conduct of the business, and which does not create or acquire an enduring capital asset or advantage, is revenue expenditure even if it is paid in a lump sum to terminate a recurring liability.

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