Law:

Section:

Section 37(1) of the Income-tax Act, 1961 [Corresponding to section 10(2)(XV) of the Indian Income-tax Act, 1922] - Business expenditure - Allowability of - Assessment years 1961-62 and 1962-63 - Assessee, a union of truck operators provided facilities to its member operators in matter of booking their trucks and charged commission at rate of 5 per cent on gross booking - Out of commission so received, one-half was paid to members of union whose trucks could not be booked - Whether since payment was made to eliminate competitors and to carry on business unfettered by competition, payment was of capital nature and was not permissible deduction as revenue expenditure in computing assessee's total income - Held, yes FACTS The assessee was a union of truck operators in the Subzi Mandi area. It wrong found provided facilities to truck operators in the matter of booking of their trucks and charged commission at 5 per cent of gross booking. After keeping one-half of such commission the assessee used to return the balance to those members of the union whose trucks were not booked. The payment was not allowed as deduction by the ITO. On appeal the AAC decided in favour of the assessee. On further appeal, the Tribunal held that the payment was in the nature of capital expenditure. On reference : HELD The amount in question was paid only to those members whose trucks were not booked. But for this payment, they would have otherwise competed in the business with the assessee. The object of the payment was to eliminate those competitors and to carry on the business unfettered by competition. The assessee made the payment to acquire this right of these persons. This led to enhance the value of its existing assets to make them more profit-yielding. The expense, therefore, could not be a revenue expense but was of a capital nature. The Tribunal was therefore right, in holding that amount so paid was not a permissible deduction for the purpose of income-tax. Note : The decision was in favour of the revenue. CASES REFERRED TO Badridas Daga v. CIT [1958] 34 ITR 10 ; [1959] SCR 690 (SC), Benarsi Dass Jagannath [1947] 15 ITR 185 (Lah.) [FB], City of London Contract Corporation v.…

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