Payments made to ward off competition are not permissible deductions for the purpose of income-tax.

( 1 ) THE following question has been REFERRED TO to this Court under Section 66 (1) of the Indian Income-tax Act, 1922 (Act No. XI of 1922) (hereinafter REFERRED TO to as "the Act of 1922"), and Section 256 (1) of the Income-tax Act, 19m (Act No. XLIII of 1961) (hereinafter REFERRED TO to as "the Act ofl961") :-

"whether on the facts and circumstances of the case. the Tribunal was right in holding that the payment of Rs. 8,160. 00 in each of the years under consideration was of a capital nature and are not a permissible deduction for the purpose of income-tax?"

( 2 ) THE assessee in this case is Truck Operators Union in the status of association of persons. The relavant assessment years, are 1961-62 and 1962-63, for which the accounting years were the calendar years 1960 and 1961 respectively. The assessee derived income from commission on booking of trucks and in that connection provided facilities to the truck operators opeating in the Subzi Mandi Market, Delhi. According to the statement of the case, the modus operandi of the assessee Union was to charge commission at the rate of 5% on the gross booking of the truck operators, who were members of the Union, operating in the Subzi Mandi area. After keeping a percentage of 2 the assessee used to return the balance to "such members". During the assessment years under consideration the assessee under the terms of agreement paid a sum of Rs. 8,160. 00 as allowance to its constituent members. Question arose for determination whether the pay- mem of Rs. 8,160. 00 was a permissible deduction for the purpose of the income-tax. The income-tax Officer decided this question against the assessee. On appeal the Appellate Assistant Commissioner decided the question in favour of the assessee. On further appeal the Tribunal held that the above payment was in the nature of capital expenditure. The question reproduced above was thereafter on the application of the assessee REFERRED TO to this Court.

( 3 ) WHEN the case came up for hearing before us on May 27, 1970, the learned counsels for the parties pointed out that the statement of the case was vague in respect of a material fact and the case should be remitted back to the Tribunal for clarification. We agreed with the learned counsels and in this connection we REFERRED TO to the following passage in the statement of the case :

"the modus operand! of the Union was to charge commission at the rate of 5% on the gross bookings of truck operators (who are member of the Union) operating in the Subzimandi area and after keeping a percentage of 2% return the balance to such members. "

( 4 ) AS it was not clear as to whether 2% was returned to all the members of the assessee-Union or whether it was returned to those members whose trucks were being booked or whether it was returned to the members whose trucks were not booked, we REFERRED TO the case back to the Tribunal with a direction to clarify the position.

( 5 ) SUPPLEMENTARY statement of the case has since been filed and it is stated that the commission of 2% was returned only to those members whose trucks were not booked. It has also been stated that the payment was made to ward off competition from certain truck operators with a view to enable the assessee to enjoy the monopoly of procuring trucks for all the vegetables and fruit vendors.

( 6 ) THE decision of the question REFERRED TO to us turns on the determination whether the payment in question was by way of capital expenditture or a revenue expenditure to qualify for deduction. The line of demarcation beween the two is very thin and no hard and fast rule has been laid down either in 1922 Act or in the 1961 Act or in the reported cases to distinguish one from the other. Each case has to be decided on its own facts. In Assam Bengal Cement Co. Ltd. v. Commissioner of Income-tax, West Bengal (1955) 27 ITR 34, (1) Bhagwati, J. speaking for the Supreme Court, after noticing this aspect, said :

"certain broad tests have however