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Issues:
1. Whether the payment of 10% of the company's net profits to Government is an expenditure or is only a sharing of the profits of the business? 2. If the payment is an expenditure, is it a capital expenditure or a revenue expenditure? Is it a payment incurred wholly for the purpose of the business as contemplated in clause (xv), of section 13 of the Income-tax Act? 3. Whether payment is of the nature of an additional royalty? And if it is so, whether it is an allowable deduction? 4. Whether on the facts and circumstances of the case the payment can be allowed as a deduction in computing the company's assessable income from businesses? 5. Whether in the circumstances of this case the assessee is estopped from claiming allowance for the 10%, payable to the Government. Analysis: 1. The payment of 10% of the company's net profits to the Government was determined to be an expenditure and not a share in the profits of the business. This conclusion was reached based on the nature of the payment and its purpose within the business framework. 2. The expenditure in question was considered to be revenue expenditure rather than capital expenditure. It was incurred for the purpose of acquiring, processing, and selling the sand, which was classified as circulating capital essential for the business operations. This categorization aligned with the relevant clauses of the Income-tax Act. 3. The payment was identified as being akin to an additional royalty, and it was deemed an allowable deduction based on the specific circumstances and nature of the payment. The deduction was justified as part of the company's operational expenses to generate profits. 4. Considering the facts and circumstances of the case, it was determined that the payment could indeed be allowed as a deduction when computing the company's assessable income from its business activities. This decision was based on the contractual arrangements and the business realities involved. 5. The company was found not to be estopped from claiming the allowance for the 10% payment to the Government. The absence of any valid grounds for estoppel was highlighted, emphasizing the company's right to seek the deduction within the legal framework. In conclusion, the reference was answered in favor of the assessee, with the costs of the reference awarded to the assessee, including Advocates' fees. The detailed analysis of each issue provided clarity on the legal interpretation and application of tax laws in the context of the company's business operations.
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