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Interpretation of section 10(2)(xv) - Whether payment of Rs. 45,000 was a capital expense under the Income Tax Act. Analysis: The case involved a dispute regarding the nature of a payment of Rs. 45,000 made by one partner to another in a partnership firm. The payment was made in consideration of assuming control of a canteen business. The Income Tax Officer, Appellate Assistant Commissioner, and Income Tax Appellate Tribunal all held the amount to be a capital expense, not admissible under section 10(2)(xv) of the Act. The primary contention was whether the payment was made for buying goodwill or to avoid competition. The court analyzed the nature of the business, which operated under military contracts and had monopoly characteristics. The absence of a free market and uncertain profit prospects led the court to conclude that the payment was not for goodwill or competition avoidance. The court delved into the distinction between capital and revenue expenditure. Capital expenditure involves acquiring assets of lasting value, while revenue expenses are incurred for immediate returns or assets of limited value. The payment of Rs. 45,000 was seen as a non-recurring expenditure to settle a claim to profits, akin to the case law examples cited. Citing precedents like B.W. Nobel v. Mitchell and In re Ramji Das Jaini & Co, the court emphasized that payments made to acquire rights in a business are capital expenditures. The court also referred to Guruswamy Naidu v. Commissioner of Income-tax and City of London Contract Corporation v. Styles to highlight the treatment of similar expenses as capital outlays. Drawing parallels with past judgments, the court concluded that the payment of Rs. 45,000 was a capital expense and not admissible as a business deduction. The court answered the question in the affirmative, ruling against the assessee and directing them to pay costs to the department. The decision was based on a thorough analysis of the legal provisions and relevant case law, establishing the nature of the payment as a capital expenditure.
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