The main legal point established in the judgment is that payments made to prevent competition and secure more profits may be considered as revenue expenditure rather than capital expenditure, and thus allowable as a deduction under the Income Tax Act.

( 1 ) THIS is a reference Under Section. 66 (1), Income Tax Act. On an application, by the Commissioner of Income Tax Calcutta, the following question of law has been formulated by the Tribunal for answer by this Court. "whether in the circumstances of the case a sum of Rs. 6698/- paid out to Mr. Mitchell-Innes. wholly and exclusively for the purposes of the business was a revenue expenditure so as to-be allowable as an admissible deduction under Section 10 (2) (XII), Income Tax Act (as it stood, before its amendment in 1946 ). "

( 2 ) MESSRS. Piggot Chapman and Co. is a firm of exchange brokers Mr. Mitchell-Innes and Mr. Danbeny who were working in partnership as exchange brokers, under the name and style of Halford Smith and Co. entered into ah agreement on 22-10-1919 with the partners of the assessee-firm Piggot Chapman and Co. It is not necessary for our present purpose to state in full the terms of this agreement. Broadly speaking Messrs. Mitchell-Innes and Danbeny who were the sole exchange brokers of Messrs. Ralli Brothers were under this agreement to sell their goodwill and the business of exchange brokers with the stipulation that they would not carry on business as exchange brokers or be interested in any such business at Calcutta or at any place within a radius of 100 miles from Calcutta for a period of twenty years unless and until this agreement was rescinded to any of the manners detailed in the agreement. In consideration of the agreement Piggot Chapman and Co. were to make certain payments and continue to pay annuities under certain stipulations.

( 3 ) AS a result of this agreement the assessee Co. continued to act as the sole exchange broker of the firm Ralli Brothers. But before the expiry of the period of twenty years stipulated in the above agreement Messrs. Ralli Brothers took in other brokers as exchange brokers in addition to the assessee firm. Under the terms of the agreement this was an occasion for terminating the agreement.

( 4 ) ANOTHER agreement however which is marked as exhibit B in this record was executed at this stage in 1927 by the partners of the assessee firm and Mr. Mitchell-Innes. It does not transpire whether Mr. Danbeny who had an interest in the firm of Halford Smith and Co. and was a party to the agreement of 1919 had or had not any further interest in the business or had executed any other document as was done by Mr. Mitchell-Innes.

( 5 ) IN view of the fact that the decision in this case depends on an interpretation of the terms contained in this agreement of 1927 fuller details of the terms have to be stated. Mr. Mitchell Innes was to transfer four seats in the Calcutta Exchange Brokers Association, belonging to the firm Messrs. Halford Smith and Co. in favour of the assessee-firm; The goodwill of the firm Halford Smith and Co. was to be absolutely transferred in favour of the assessee-firm. The consideration mentioned in the agreement was 4000. for transferring the four seats in the Association above mentioned and for the sale of the goodwill. It was further agreed that Mitchell-Innes would not in future and at any time work as exchange broker or in any way compete with the assessee-firm and the consideration for such agreeing not to enter into competition with the assessee-firm as exchange brokers in Calcutta were annuities payable during the life-time of Mitchell-Innes to him and after his death to his wife. The payment of the annuities was made Contingent and payable only and so long as the brokerage earned from Messrs. Ralli Brothers and two other firms was not less than the double of the amount of such payment of annuity in each year. In certain circumstances the annuity was to be proportionately reduced and if the firm Ralli Brothers ceased to carry on business in Calcutta the annuities would forthwith cease.

( 6 ) THE question referred by the Tribunal is whether the payment of the annuity as under the agreement of 1927 to Mitchell Innes should be co