Law:

Section:

Section 37(1) of the Income-tax Act, 1961 - Business expenditure - Allowability of - Assessment year 1972-73 - Assessee-company was engaged in business of manufacture of ink - One A was managing director of assessee-company for about 18 years and left it on 31-10-1971 - To exploit his experience A decided to manufacture and sell ink - A partnership firm consisting of his wife and two daughters, was formed - All preparations such as Government's approval, opening of and operation of bank account, advertisement, etc. were made - On 14-2-1972 assessee entered into an agreement with said firm whereby it agreed to close down its business and assessee in consideration thereof agreed to pay a sum of Rs. 1 lakh to it - As agreed payment was made, A's firm was dissolved and A also left India - Whether on facts payment made by assessee brought into existence an enduring benefit and, thus, it was an expenditure of capital in nature - Held, yes FACTS The assessee-company was engaged in the manufacture of ink. One A was the managing director of the assessee for about 18 years and left it on 31-10-1971. Thereafter he entertained the idea of utilising his experience with the assessee in the manufacture and sale of ink. A partnership firm was formed consisting of his wife and two daughters of A for the purpose of manufacture and sale of writing ink. All the preparations such as industrial licence, an industrial site, opening of bank account, advertisements, etc., were made. Thereafter, an agreement was entered into on 14-2-1972 between the assessee and the partnership whereby the assessee agreed to pay a sum of Rs. 1,00,000 to the firm by way of compensation and firm agreed to discontinue the aforesaid business forthwith and also agreed to not to commence said business at any time within a period of five years. As per agreement the aforesaid amount was paid to the firm and the firm was closed down. For the assessment year 1972-73 the assessee claimed that the aforesaid payment was revenue expenditure, deductible in computing its income. The ITO disallowed the assessee's claim and held that the expenditure was incurred by the assessee once and for all to ward off competition in…

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