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Issues:
1. Whether the payment made to prevent a competitor from bidding for a contract is a deductible expenditure for income tax purposes. Analysis: The case involved assessees who paid a sum to a potential competitor to refrain from bidding for a contract, claiming it as a deductible expenditure. The key legal provision under consideration was Section 10(2)(ix) of the Indian Income Tax Act, which allows for the deduction of "any expenditure (not being in the nature of capital expenditure) incurred solely for the purpose of earning such profits or gains." The court referred to relevant English cases to elucidate the distinction between capital payments and deductible expenditures. In the case of City of London Contract Corporation v. Styles, Lord Justice Bowen emphasized that payments made to acquire a concern, rather than for the purpose of carrying on the concern, are not deductible. Similarly, Lord Esher highlighted the distinction between expenditure to earn income within the year and capital invested to purchase a business. The court also cited John Smith & Son v. Moore, where it was held that sums paid to acquire a business are considered capital and not deductible as expenses of carrying on the business. Furthermore, the judgment referred to the case of Countess of Warwick Steamship Co. v. Ogg, where a payment made to escape a contract due to unprofitability was not considered a deductible loss. The court applied Bowen, L.J.'s test, concluding that the payment in question was made to obtain the contract, not to work it, thus disallowing it as a deductible expenditure. Consequently, the court ruled against the assessee, affirming the decision of the Income Tax Commissioner and ordering the assessee to pay costs. In agreement with the Chief Justice, Justice Horace Owen Compton Beasley and Justice Madhavan Nair concurred with the decision, leading to a unanimous judgment upholding the disallowance of the payment as a deductible expenditure for income tax purposes.
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