Law:

Section:

Income tax Act (XI of 1922), S. 10 (2) (xvi) Fees paid for "protection" of, or "stopping competition" against business-¬Expenditure of capital nature Not deductable Test for deter¬mining whether fees paid are revenue expenditure or expenditure of capital nature. While considering whether an expenditure is of a capital nature or revenue expenditure, the dictum to be kept in mind is: An asset or an advantage obtained for the enduring benefit of the trade is a capital expenditure and not a revenue expenditure. The question is one of fact and each case has to be considered on its own merits: Held, therefore, that "protection" fees or fees paid for "stopping competition" are expenditure of a capital nature and not deductable under section 10 (2) (xvi), Income tax Act. The assessee company, apart from paying rents and royalties to Government for right to quarry limestone in certain areas for the purpose of manufacturing cement, paid to Government annually a certain sum as "protection" fees for securing from Government a covenant that they (the Government) would not grant any lease, permit, or prospecting licence to any other party in respect of limestone in another quarry without a condition that limestone quarried by such other party was not to be used by it for the manufacture of cement. Held, that the sum paid by the company as "protection" fees was a capital and not a revenue expenditure. Messrs Assam Bengal Cement Co. Ltd. v. Commissioner of Income tax West Bengal A I R 1955 S C 89 fol. Messrs Mohan Lal Hargovind of Jubbulpore v. Commissioner of Income tax, C. P. and Berar, Nagpur P L D 1949 P C 147 distinguished. British Insulated and Helsby Cables, Ltd. v. Atherton 1926 A C 205 ; R. S. Munshi Gulab Singh & Sons v. Commissioner of Income tax, Lahore A I R 1947 Lah. 82 ; Benarsi Dass Jagannath of Amritsar v. Commissioner of Income tax A I R 1947 Lab. 162 ; In re The Century Spinning and Manufacturing Co. Ltd. A I R 1947 Bom. 445 ; The Jagat Bus Service, Saharanpur v. Commissioner of Income tax, U. P. and Ajmer Merwara, Lucknow A I R 1950 All. 295 ; The Commissioner of Income tax, Bombay v. The Finlay Mills Ltd. A I R 1951 S C 464 and Commissioner of Income…

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