JUDGMENT Tirath S. Thakur, J.—The Tribunal, Bangalore, has at the instance of the Revenue, referred to this Court the following three questions, for opinion : "(1) Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the amount of Rs. 99 lakhs agreed to be paid by the assessee to GEC for premature termination of its distributor's agreement is an allowable deduction, as revenue expenditure ? (2) Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the protocol dt. 28th Nov., 1972 had not been superseded by cl. 13 of the agreement dt. 10th Feb., 1972 ? (3) Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the agreement to pay Rs. 99 lakhs as compensation to GEC was reasonable and was one made on account of commercial expediency ?" 2. The assessee hereinafter referred to as 'MICO' for short, is a company engaged in the manufacture and sale of Spark Plugs and fuel injectors, used in automobiles. It has established its own sales houses for the entire South India and other Regions including Bombay and Calcutta. In Northern Region comprising Delhi and portions of States around it MICO was marketing its products through a company by the name Ghaziabad Engineering Company Ltd., hereinafter referred to as GEC for short. GEC had for the said Region been assigned the Sale Distributorship of MICO products in terms of an arrangement which was in vogue since the year 1954. The arrangement worked on the basis of an unwritten understanding between the parties till the 10th of Feb., 1967, when a written agreement for the first time was executed between them valid for a period of 5 years. This agreement was to expire on the 9th of Feb., 1972. Before that however, MICO took a policy decision to establish its own sales house in Delhi on a pattern similar to the one that existed in the Southern Region. For its own reasons MICO did not desire to take over the territories formerly operated by GEC immediately, but intended to complete the take over in a phased manner. 3. On 28th Jan., 1972, MICO appears to have addressed a letter to GEC specifying the pattern of the proposed takeover. For its own reasons MICO did not desire to take over the territories formerly operated by GEC immediately, but intended to complete the take over in a phased manner. 3. On 28th Jan., 1972, MICO appears to have addressed a letter to GEC specifying the pattern of the proposed takeover. As per the letter, which the parties to the same styled as a protocol, the Northern Region for which GEC was the sole distributor comprising of Delhi and Utter Pradesh, Madhya Pradesh, Rajasthan, Punjab & Haryana, were to be divided into three parts. 4. The first part was to be taken over for direct sales operation from February, 1972 in the first phase of the take over. Under the second phase, a few other parts of Northern Region were to be taken over by MICO from February, 1977, whereas under the third phase all the remaining parts of the Region were to come under MICO's direct sales control, thereby ending the distribution system through GEC. The Third phase, it is pertinent to mention, comprised of Delhi, Ghaziabad and other places described in the map enclosed with the letter. 5. GEC, it is not disputed, acknowledged the acceptance of the protocol by returning a duplicate thereof duly signed by it. Shortly after the aforesaid protocol, came an agreement dt. the 18th March, 1972, made effective from 10th Feb., 1972 executed between MICO and GEC which was to run for a period of 5 years. This agreement specified and restricted GECs distributorship to the areas that fell under the second and the third phase. The agreement dt. 10th Feb., 1972 was to end on the 9th of Feb., 1977. Instead of renewing the agreement any further MICO decided to take over the remaining territories at once without going through the phased programme of take over as was originally contemplated under the protocol. The reason given by MICO was that certain sales-tax concessions in Delhi had given rise to an abnormally high sales in that region compared to sales in other parts especially those taken over under the first phase. Negotiations, it appears, were held with GEC by MICO and after discussions and deliberations GEC agreed for the premature termination of their agreement upon payment to it of a compensation of Rs. 99 lakhs, spread over a period of three years. Negotiations, it appears, were held with GEC by MICO and after discussions and deliberations GEC agreed for the premature termination of their agreement upon payment to it of a compensation of Rs. 99 lakhs, spread over a period of three years. Consequently MICO released the first payment in the year 1977 and made a provision for the balance on the basis of accrued liability. In its accounts MICO treated the sum of Rs. 99 lakhs part whereof was to be paid in future as a revenue payment. The company, it is not disputed, follows the mercantile system of accounts. 6. In the assessment proceedings for the asst. yr. 1978-79, MICO claimed a deduction of Rs. 99 lakhs, on the ground that it was a revenue expenditure. The ITO did not however accede to the said claim and being of the view that it was a voluntary payment made ex gratia and not motivated by any business considerations, brought the same to tax on capital account. 7. Aggrieved, MICO preferred an appeal before the CIT(A) who held that the protocol dt. 28th Jan., 1972, was rendered inoperative in the face of cl. 13 of the agreement dt. 18th of March, 1972 and that GEC had no right against MICO. The CIT took the view that the payment of the amount in question was ex gratia and that in any case the same was capital in nature. 8. Dissatisfied MICO appealed to the Tribunal. The Tribunal on an interpretation of cl. 13 of the agreement dt. 18th March, 1972, and the terms embodied in the protocol dt. 28th Jan., 1972, and after taking into consideration the facts and circumstances of the case including the correspondence between the parties, held that the protocol dt. 28th Jan., 1972 had not been superseded by the agreement aforesaid. The Tribunal was of the view that the intention of the parties was to treat the protocol dt. 28th Jan., 1972, as paramount and that cl. 13 of the agreement dt. 18th March was incorporated only to fulfil the requirement of law. The payment of Rs. 99 lakhs by MICO to GEC was, in the opinion of the Tribunal, in the best business interests of the company, guided by commercial expediency and represented compensation for the premature termination of the agreement. 13 of the agreement dt. 18th March was incorporated only to fulfil the requirement of law. The payment of Rs. 99 lakhs by MICO to GEC was, in the opinion of the Tribunal, in the best business interests of the company, guided by commercial expediency and represented compensation for the premature termination of the agreement. The Tribunal further held that the compensation agreed to be paid to GEC was reasonable in the facts and the circumstances of the case, and accordingly allowed the same as a revenue expenditure. At the instance of the Revenue, however, the Tribunal, referred the three questions reproduced earlier to this Court for its opinion. 9. Appearing in support of the reference, Mr. H. L. Dattu, learned standing counsel for the Revenue made a two fold submission. He argued that on the findings returned by the Tribunal, as to the subsistence of the protocol even after the execution of the agreement dt. 18th March, 1972, the payment in question was capital expenditure as the same had been made with a view to acquire for MICO an enduring benefit, in the nature of a right to sell MICO's products in the Northern territory earlier serviced by GEC to everybody's exclusion. The acquisition of this advantage was according to the learned counsel, in the capital field and was tantamount to acquisition of capital asset by the assessee. 10. Alternatively it was urged that the view taken by the Tribunal as to the subsistence of the protocol, the terms and conditions of the agreement aforesaid and, in particular, cl. 13 thereof notwithstanding, was clearly erroneous and legally unsustainable. It was contended that in the absence of any contractual or other legal obligation to make any payment to GEC for the termination of a non-existent agreement the payment in question was nothing but a gravitations payment made otherwise than for purposes of the assessee's business; hence not an allowable deduction under s. 37 of the Act. 11. Mr. S. E. Dastur learned senior counsel appearing for the assessee on the other hand contended that cl. 13 of the agreement dt. 18th March, 1972 did not have the effect of nullifying the protocol dt. 28th Jan., 1972. 11. Mr. S. E. Dastur learned senior counsel appearing for the assessee on the other hand contended that cl. 13 of the agreement dt. 18th March, 1972 did not have the effect of nullifying the protocol dt. 28th Jan., 1972. It was urged that since the parties to the transaction had no dispute whatsoever as to the subsistence of the protocol even after the execution of the agreement aforesaid it was not open to the Department to contend that the protocol stood nullified by the agreement. It was argued that even if it was possible to take a view that cl. 13 of the agreement had nullified the protocol and that MICO was not legally bound to make any payment to GEC, yet the same did not disqualify the payment from being treated as an allowable business expenditure, since the same was made on the basis of a bona fide commercial decision taken by MICO who would have otherwise been faced with a protracted litigation and consequent disruption in the distribution of its products. GEC, it was urged, had been acting in the northern territories for over 20 years and due to its dominant presence in the area, was in a position to seriously prejudice MICO's business if its distributorship had been permanently terminated without any compensation. It was strenuously contended that the payment of Rs. 99 lakhs was not capital in nature as MICO had not acquired any capital asset whatsoever particularly because the fixed capital of the company had remained totally untouched. The payment, contended the learned counsel, was made only with a view to remove an expensive intermediary and reorganise the company's business on better and more profitable lines. 12. Two questions fall for consideration namely; (1) Whether the protocol dt. 28th Jan., 1972 had survived the rigors of cl. 13 of the agreement dt. 18th March, 1972 subsequently entered into between MICO and GEC; and; (2) Whether the payment made by MICO to GEC was, depending upon the answer to question No. 1, above, a revenue or capital payment. 13. Re : Question No. 1 : An answer to this question depends upon the nature and the content of the agreement arrived at between the parties in the form of the protocol dt. 28th Jan., 1972 and the subsequent agreement executed between the parties on the 18th March, 1972. 13. Re : Question No. 1 : An answer to this question depends upon the nature and the content of the agreement arrived at between the parties in the form of the protocol dt. 28th Jan., 1972 and the subsequent agreement executed between the parties on the 18th March, 1972. The question in substance is as to whether the terms of the subsequent agreement either specifically or by necessary implication superseded what was otherwise contained and settled in the protocol dt. 28th Jan., 1972, and as to whether the two can co-exist. An answer to these questions would necessarily take us to the terms of the protocol and the agreement both of which documents were repeatedly read out by the learned counsel before us in the course of their respective submissions. 14. The protocol dt. 28th Jan., 1972 is in the nature of a policy decision which is to a considerable extent specific in regard to most of the issues that appear to have been worked out between the parties at that stage. For instance, the protocol decides that the sole distributorship of GEC for MICO products in the northern region was expiring on the 9th Feb., 1972 and that MICO had after careful consideration decided to establish its own sales house in Delhi on the same pattern as prevalent in the rest of the country. It also records that the process of take over shall be in three phases commencing February, 1972 to be completed eventually by February, 1982. The protocol identifies the territories to be taken over by MICO in the three phases, and provides that till such time the terms and conditions of a new agreement to be entered into between MICO and GEC are finalised GEC would continue working on the basis of the then existing agreement. It further reserves a right in favour of MICO to accelerate the process of take over and complete the phased programme earlier than specified in the protocol, should the conditions stipulated in the new agreement to be entered into be not adhered by GEC. It further reserves a right in favour of MICO to accelerate the process of take over and complete the phased programme earlier than specified in the protocol, should the conditions stipulated in the new agreement to be entered into be not adhered by GEC. Suffice it to say that the protocol purports to provisionally create a distributorship in favour of GEC for the products manufactured by the former till February, 1982, subject to the condition that between 1972-1977, the said distributorship would be for a larger territory than that which it will service during the last phase of take over from 1977 to 1982. The terms and conditions subject to which GEC was to function as the sole distributor of MICO, were left to be finalised and incorporated in a new agreement to be executed between the parties. It is not in dispute that the new agreement referred to in the protocol dt. 28th Jan., 1972 was neither finalised nor executed between the parties, even though on behalf of MICO it was urged that the subsequent agreement executed on 18th March, 1972 was in fact a step taken in implementation of the decision recorded in the protocol. Assuming this to be so, it is nobody's case that an agreement contemplated by the protocol was actually finalised or executed. 15. Let us then turn to the agreement dt. 18th March, 1972. A careful reading of the agreement would lead one to discover certain prominent features relevant for purposes of determining as to whether the same was in support or derogation of the contents of the protocol. The first and the foremost of these circumstances is the fact that the agreement does not make any mention whatsoever of the protocol dt. 28th Jan., 1972. Far from stating that the agreement is a step in the implementation of the protocol it does not even make a reference to the same. This circumstance is significant looking to the fact that the protocol and the agreement were executed within a short span of less than 3 months apart. If the intention of the parties was to take only a step in aid of the implementation of the protocol there was no reason why the agreement should not have specifically said so. Mr. This circumstance is significant looking to the fact that the protocol and the agreement were executed within a short span of less than 3 months apart. If the intention of the parties was to take only a step in aid of the implementation of the protocol there was no reason why the agreement should not have specifically said so. Mr. Dastur, learned counsel appearing for the assessee, however, contended that it was inconceivable that a protocol which was entered into only a few months before the execution of the agreement could have been superseded and nullified by the terms of the agreement and that it would require very strong evidence to lead to any such conclusion. The argument although attractive is all the same double edged for it can as well be argued that if the agreement was only in aid of the protocol then neither the draftsman for the parties could have forgotten to make a mention about the same; so soon after the protocol had been reduced to writing. 16. The second significant feature is, that the agreement is limited to a period of 5 years only reckoned from 10th Feb., 1972. What is important is that the agreement does not envisage any right of renewal in favour of GEC beyond 10th Feb., 1977. Now if the agreement was to be consistent with the protocol, the same ought to have recognised GEC's right to continue with the distributorship business at least in respect of the third phase territories till the year 1982. This however is not so. On the contrary the agreement is made terminable by either party after giving to the other a notice in writing of not less than six months. Clause 7 of the agreement provides for termination without notice in certain situations while cl. 8 thereof provides for termination by notice upon the happening of any one of the events stipulated therein. In terms of cl. 9 of the agreement, no compensation is payable to GEC in the event of the termination of the agreement under cls. 6,7 and 8 thereof. From a reading of the above it is apparent that the agreement did not recognise GEC's right to continue with the distributorship work beyond February, 1977, no matter the protocol in principle recognised such a right. 17. The third and the most important circumstance is a provision made by cl. 6,7 and 8 thereof. From a reading of the above it is apparent that the agreement did not recognise GEC's right to continue with the distributorship work beyond February, 1977, no matter the protocol in principle recognised such a right. 17. The third and the most important circumstance is a provision made by cl. 13 of the agreement cancelling all former agreements between the parties. The said clause reads thus : "Clause 13 : This agreement supersedes all agreements whether verbal or written subsisting between the parties immediately prior to the date hereof relating to the sale of and purchase of the said products for resale within the said territory or otherwise and such prior agreements are hereby cancelled and the company shall be under no liability of any kind whatsoever for damages or otherwise in respect of the non-delivery from any cause whatsoever (including causes within the company's control) of any of the said products which the company shall during the term of any prior agreements have contracted to deliver." 18. A plain reading of the above shows that all agreements whether the same were verbal or written subsisting between the parties immediately prior to the date of the agreement, relating to the sale and purchase of the products or otherwise were specifically superseded and MICO absolved of the liability of whatever kind for damages or otherwise arising out of the same. Apart from the fact that the language employed in cl. 13 does not admit of any exception in favour of any agreement whether in the form of a protocol or otherwise, there is nothing to indicate that the protocol which too is, broadly speaking, an agreement between the parties, was saved from overriding provisions of the agreement. The use of the expression "relating to the sale and purchase of the said products for resale within the said territory or otherwise" clearly identifies the subject relating to which the previous agreements were meant to be superseded while the expression "agreements either verbal or writing subsisting between the parties" make a sweeping provision for supersession of all agreements on the subject mentioned earlier. The protocol, it is clear from its contents, related only to the sale and purchase of the products manufactured by MICO within the territories in question. The protocol, it is clear from its contents, related only to the sale and purchase of the products manufactured by MICO within the territories in question. It inter alia provided for continuance of the existing arrangement between MICO and GEC on the terms and conditions stipulated in the agreement then existing but additionally provided for a phased take over of the marketing activity by MICO on the terms set out therein. It is not therefore possible to accept the submission made by Mr. Dastur that the protocol was not meant to be affected by the agreement or that the protocol and the agreement related to different subject matters. Equally untenable appears to us the contention urged by Mr. Dastur that cl. 13 was only a standard, routine clause designed to govern the day-to-day transactions of purchase and sale of the products manufactured by MICO and did not relate to the overall long-term trading relationship between GEC and MICO. There is in our opinion no justification for placing such a restricted interpretation on the terms of cl. 13 which is widely worded and does not admit of any exception in favour of any pre-existing agreement whether in the form of a protocol, a policy decision or otherwise. 19. Mr. Dastur then relied upon certain surrounding circumstances which according to him showed that the agreement did not have the effect of nullifying the protocol. It was pointed out that in certain respect as for instance the territory referred to in the protocol in the agreement there was no conflict between the two and, therefore, the protocol must be deemed to have survived the provisions of cl. 13 of the agreement. Reliance was also placed upon what was termed as 'subsequent conduct of the parties' in order to show that the subsequent agreement did not and was never meant to supersede the protocol. 20. It cannot be disputed that the surrounding circumstances and the conduct of the parties in regard to a particular transaction the terms whereof are reduced to writing can be helpful for purposes of determining the true intention of the parties but, it is equally true that reference to or reliance upon any such attendant circumstances or conduct would be justified only in cases where the terms of the document are found to be vague or indefinite. It is elementary that where the language employed and the terms of the document are clear the apparent effect of the said terms cannot be whittled down or nullified by placing reliance upon the surrounding circumstances or the subsequent conduct of the parties. Reliance upon any such extrinsic material is after all meant only to clear the mist and bring forth the true intention of the parties. If however, the language employed in the document does not suffer from any vagueness, assistance from any such extrinsic evidence would be wholly unnecessary and even impermissible. 21. The decision of the Supreme Court in The Union of India (UOI) Vs. D.N. Revri and Co. and Others, AIR 1976 SC 2257 , reliance whereupon was placed by Mr. Dastur, does not lend much assistance to the assessee. The principle stated in the said judgment on the contrary supports the view being taken by us. Their Lordships have observed that a contract being a commercial document between the parties must be interpreted in a manner as to give efficacy to the same rather than to invalidate it, and that it would not be right while interpreting a contract, entered into between two lay parties, to apply the strict rules of construction which are ordinarily applicable to a conveyance and other formal documents. The meaning of such a contract must be gathered by adopting a common sense approach and it must not be allowed to be thwarted by a narrow, pedantic and legalistic interpretation. 22. This is true even as regards the other decision relied upon by Mr. Dastur reported in the case of The Godhra Electricity Co. Ltd. and Another Vs. The State of Gujarat and Another, AIR 1975 SC 32 . That decision is a clear authority for the proposition that if the meaning of a word or phrase or sentence is clear, extrinsic evidence is not admissible. It is only when there is any latent ambiguity that extrinsic evidence in the form of interpreting statements in which both parties have concurred should be admissible. The rationale behind this view is that the parties themselves might not have been clear as to the meaning of a word or phrase when they entered into the contract. It is only when there is any latent ambiguity that extrinsic evidence in the form of interpreting statements in which both parties have concurred should be admissible. The rationale behind this view is that the parties themselves might not have been clear as to the meaning of a word or phrase when they entered into the contract. Unanticipated situations might arise or come into the contemplation of the parties subsequently which would sharpen their focus and any statement by them which would illuminate the darkness arising out of the ambiguity of the language need not be shut out. Their Lordships summed up the legal position thus : "Subsequent 'interpreting' statements might not always change the meaning of a word or a phrase. A word or a phrase is not always crystal clear. When both parties subsequently say that by the word or phrase which, in the context, is ambiguous, they meant this, it only supplies a glossary as to the meaning of the word or phrase. After all, the inquiry is as to what the intention of the parties was from the language used. And, why is it that parties cannot clear the latent ambiguity in the language by a subsequent interpreting statement ? If the meaning of the word or phrase or sentence is clear, extrinsic evidence is not admissible." To the same effect is the judgment of the Supreme Court in Abdulla Ahmed Vs. Animendra Kissen Mitter, AIR 1950 SC 15 . 23. Applying the principle stated in the judgments aforementioned, to the instant case, there is no gainsaid that extrinsic evidence whether in the nature of surrounding circumstances or subsequent conduct of the parties was inadmissible in view of the absence of any ambiguity latent or otherwise in the provisions of cl. 13 in so far as the same supersedes all previous agreements on the subject. The fact that similar provisions existed in the agreement earlier executed between the parties in the year 1967 too is no ground for ignoring the said provision or treating it as redundant. It is also pertinent to mention that except the agreement of the year 1967 and the protocol dt. 28th Jan., 1972 there was no other agreement between the parties whether oral or written which could be superseded or was meant to be nullified by incorporating a provision like cl. 13. It follows that the protocol dt. It is also pertinent to mention that except the agreement of the year 1967 and the protocol dt. 28th Jan., 1972 there was no other agreement between the parties whether oral or written which could be superseded or was meant to be nullified by incorporating a provision like cl. 13. It follows that the protocol dt. 28th Jan., 1972 did not survive the rigors of cl. 13 of the 1972 agreement and was therefore nonest, as on the date the payment in question was made by MICO. Our answer to question 1 is accordingly in the negative. 24. Re : Question No. 2 : For an expenditure to be an allowable deduction under s. 37 of the IT Act, it is necessary that the same is laid out or expended wholly and exclusively for the purposes of the business or profession and is not in the nature of a capital expenditure. The Act does not define the expression "capital expenditure". As to what would distinguish a revenue expenditure from an expenditure of a capital nature has been the subject-matter of a long line of decisions both in India as well as in England. A large number of such decisions were cited before us at the bar by the learned counsel in support of their respective contentions. Reference to all those decisions is in our opinion un-necessary for each such case has been decided in the context of its own peculiar facts and the principles formulated apply to other cases only if the fact situation in identical or at least nearly so. As a matter of fact even one single significant detail may alter the conclusion drastically. Judicial opinion is however unanimous to the extent that there is no single test which can be said to be of universal application nor is there a test which would hold good in every conceivable situation. The situational diversities are in fact so innumerable that even the Parliament has in its supreme wisdom avoided to give any precise definition to the expressions. Courts have, therefore, been extremely cautious in formulating any general principles candidly recognising that it is difficult to formulate a test or principle which may be sufficiently accurate and yet exhaustive enough to cover all possible cases. Courts have, therefore, been extremely cautious in formulating any general principles candidly recognising that it is difficult to formulate a test or principle which may be sufficiently accurate and yet exhaustive enough to cover all possible cases. One is reminded of the warning given by Lord Macnaghten in Dovey vs. Cory (1901) AC 477 against any attempt to formulate principles of a general nature. The following passage sufficiently sums up the difficulty be-setting the task of providing a principle of general application : "I do not think it desirable for any Tribunal to do that which Parliament has abstained from doing - that is, to formulate precise rules for the guidance or embarrassment of businessmen in the conduct of business affairs. There never has been, and I think there never will be, much difficulty in dealing with any particular case on its own facts and circumstances; and speaking for myself, I rather doubt the wisdom of attempting to do more." 25. The line of demarcation between what is a capital expenditure and what is not is so thin that it is often possible in a large number of cases to take either one of the views. As Lord Green (MR) observed in IRC vs. British Salmon Aero Engines Ltd. (1938) 22 TC 29, there have been cases on the borderline and in many such cases it is almost true to say that the spin of a coin would decide almost as satisfactorily as an attempt to find reasons. To somewhat similar effect is the note of caution sounded by the Supreme Court in K.T.M.T.M. Abdul Kayoom and Another Vs. Commissioner of Income Tax, AIR 1962 SC 680 where their Lordships observed that the Courts while dealing with cases of such nature should avoid the temptation of deciding the same by matching colours of one case against the other. The approach to be adopted in such a situations was summed up in the following words : "To decide, therefore, on which side of the line a case falls, its broad resemblance to another case is not at all decisive. What is decisive is the nature of the business, the nature of the expenditure, the nature of the right acquired, and their relation inter se, and this is the only key to resolve the issue in the light of the general principles, which are followed in such cases." 26. What is decisive is the nature of the business, the nature of the expenditure, the nature of the right acquired, and their relation inter se, and this is the only key to resolve the issue in the light of the general principles, which are followed in such cases." 26. The broad principles that have been evolved by the judicial pronouncements on the subject are of vintage value, the earliest having been stated more than a century ago in City of London Contract Corporation vs. Styles (1887) 2 TC 239. The test, it was held, was whether the expenditure was on the acquisition of a concern or in the carrying on of a concern. The former would constitute capital and the latter revenue expenditure. This was followed by the test of "an expenditure made once and for all" stated by Lord Dunedin in Vallambrossa Rubber Company vs. Farmer (1910) 5 TC 529. If the payment was made once and for all, it was said to be an important circumstance showing that the expenditure was of a capital nature. Then came the test of "fixed or circulating capital" stated in John Smith & Son vs. More (Inspector of Taxes) (1920) 12 TC 266, and finally the test of "enduring benefit" stated by Viscount Cave L. C which has been universally followed by the Courts in India. In India the legal position was summed up by Bhagwati J., in Assam Bengal Cement Co. Ltd. Vs. The Commissioner of Income Tax, West Bengal, AIR 1955 SC 89 , in the following words : "If the expenditure is made for acquiring or bringing into existence an asset or advantage for the enduring benefit of the business it is properly attributable to capital and is of the nature of capital expenditure. If on the other hand it is made not for the purpose of bringing into existence any such asset or advantage but for running the business or working it with a view to produce the profits it is a revenue expenditure. If any such asset or advantage for the enduring benefit of the business is thus acquired or brought into existence it would be immaterial whether the source of the payment was the capital or the income of the concern or whether the payment was made once and for all or was made periodically. If any such asset or advantage for the enduring benefit of the business is thus acquired or brought into existence it would be immaterial whether the source of the payment was the capital or the income of the concern or whether the payment was made once and for all or was made periodically. The aim and object of the expenditure would determine the character of the expenditure whether it is a capital expenditure or a revenue expenditure. The source or the manner of the payment would then be of no consequence. It is only in those cases where this test is of no avail that one may go to the test of fixed or circulating capital and consider whether the expenditure incurred was part of the fixed capital of the business or part of its circulating capital. If it was part of the fixed capital of the business it would be of the nature of capital expenditure and if it was part of its circulating capital it would be of the nature of revenue expenditure. These tests are thus mutually exclusive and have to be applied to the facts of each particular case in the manner above indicated." 27. The issue arising in the instant case has then to be examined in the backdrop of the above, constantly bearing in mind that there is no universally applicable test and the broad principles evolved are at best only helpful in arriving at the correct conclusion without any one single test or principle being conclusive in nature. 28. On behalf of the Revenue, Mr. Dattu had opened his arguments on the premise that the finding returned by the Tribunal as to the subsistence of the protocol even after the execution of the agreement dt. 18th March, 1972, was legally sound. It was urged on that assumption that what was acquired by MICO in consideration of the payment in question was an advantage of an enduring nature as a consequence of the premature termination of the distributorship agreement and the protocol existing between the parties. This advantage, it was argued, was not otherwise available to MICO on account of the restrictions placed upon its right to sell its products in the northern territory by the terms of the protocol. This advantage, it was argued, was not otherwise available to MICO on account of the restrictions placed upon its right to sell its products in the northern territory by the terms of the protocol. The removal of these restrictions was, according to the Revenue, an advantage of an enduring character and an expenditure incurred on the acquisition thereof capital in nature. Judgments in support of this submission were cited by Mr. Dattu, in a bid to show that an advantage by way of transfer of an exclusive right to market goods, has been considered by the Courts to be a capital asset. Strictly speaking, this aspect of the controversy does not survive for consideration in view of our finding that the protocol had not survived cl. 13 of the agreement dt. 18th March, 1972. Nevertheless, since the matter was argued at a very great length by the learned counsel, we consider it desirable to briefly deal with the said aspect also. 29. The judgments of the High Court of Madras, Allahabad and Bombay in India Manufacturers (P) Ltd. Vs. Commissioner of Income Tax, (1985) 155 ITR 770 Mad, R. S. RADHA KISHAN KAPOOR Vs. COMMISSIONER OF Income Tax, U. P. and V. P., (1963) 47 ITR 938 All and Kirloskar Oil Engines Ltd. Vs. Commissioner of Income Tax, (1994) 206 ITR 13 Bom, reliance whereupon was placed by Mr. Dattu are clearly distinguishable from the facts and circumstances of the instant case. In all those cases, the question had arisen in the context of either acquiring an exclusive right of franchise of purchase the goods as in the case of India Manufacturers (P) Ltd. (supra), or the purchase by one partner of the share in the business of the other partner, as in the case of Radhakrishan Kapoor's case (supra) or else the purchase of any exclusive right to manufacture, sell and export machinery as in the case of Kirloskar Oil Engine Ltd. (supra). In all these cases but for the purchase made by the assessee it had no right to carry on the activity in question. This is not however true in the instant case where MICO did have a right to sell in northern territories and was actually selling its products in the said territory but only subject to certain restrictions in that regard. This is not however true in the instant case where MICO did have a right to sell in northern territories and was actually selling its products in the said territory but only subject to certain restrictions in that regard. It was not a case where the assessee was acquiring for the first time something which it did not otherwise own or possess. The fact that the assessee's business is not only the manufacture but to market the manufactured goods clearly implies that the marketing of the products whether directly or through its distributor was not unknown to what was being carried on by it. In substance, what the assessee achieved by making the payment was the removal of the restrictions under which it was carrying on the business in the sale of the manufactured products. 30. Reliance was then placed upon the judgment of the Supreme Court in Assam Bengal Cement Ltd. vs. CIT (supra). That was a case where the character of an amount paid by the assessee carrying on business in limestone quarrying to the Government of Assam in consideration of the latter not granting to any other person a lease for the purpose of prospecting limestone was being determined. The Court held that the asset which the company had acquired in consideration of its recurring payment was in the nature of a capital asset as the payment was made to carry on its business unfettered by any competition from others within the area which in turn had the effect of appreciating the whole of the capital asset. The Supreme Court summarised the legal position in the following words : "If, on the other hand, it is made not for the purpose of bringing into existence any such asset or advantage but for running the business or working it with a view to produce the profits it is a revenue expenditure.... The aim and object of the expenditure would determine the character of the expenditure, whether it is a capital expenditure or a revenue expenditure.... One has, therefore, got to apply these criteria one after the other from the business point of view and come to the conclusion whether on a fair appreciation of the whole situation the expenditure incurred in a particular case is of the nature of capital expenditure or revenue expenditure". 31. The facts in the instant case are different. One has, therefore, got to apply these criteria one after the other from the business point of view and come to the conclusion whether on a fair appreciation of the whole situation the expenditure incurred in a particular case is of the nature of capital expenditure or revenue expenditure". 31. The facts in the instant case are different. Here the payment is made not for purposes of bringing into existence any asset or advantage, but for running the business on better and more profitable lines. Any payment made with a view to reorganise the business or to run the same more efficiently cannot, when seen from the business point of view, be said to be tentamount to the acquisition of an asset. So also is the view taken in Abdul Kayoom vs. CIT (supra). There the assessee had obtained on lease from the Government an exclusive right to fish for, and take away, chank shells from a certain specified area of the sea coast. The Court held that the assessee had made the payment to obtain an exclusive right to fish, and that the sum was paid not for the chanks, but to acquire an asset from which it may collect its stock-in-trade in the form of chanks. The position in the present case is however entirely different, and the view taken in the said judgment does not lend any support to the Revenue. 32. Reliance was then placed upon a Division Bench decision of this Court in D.P. Chirania and Company Vs. Commissioner of Income Tax, Mysore, (1978) 112 ITR 12 KAR, where this Court has taken the view that an amount paid by the assessee for the construction of an access road for carrying on more profitably the mining business of the assessee was capital in nature. Reliance for this proposition was placed by this Court in Travancore-cochin Chemicals Ltd. Vs. Commissioner of Income Tax, Kerala, AIR 1977 SC 991 . This decision was however later confined by the Supreme Court to the peculiar facts of the said case in L.B. Sugar Factory and Oil Mills (P) Ltd., Pilibhit Vs. Commissioner of Income Tax, U.P., Lucknow, AIR 1981 SC 395 . This has been pointed out by this Court in the subsequent judgment delivered by it in Hindustan Machine Tools Ltd. Vs. Commissioner of Income Tax, Karnataka-II, ILR (1988) KAR 2012. Commissioner of Income Tax, U.P., Lucknow, AIR 1981 SC 395 . This has been pointed out by this Court in the subsequent judgment delivered by it in Hindustan Machine Tools Ltd. Vs. Commissioner of Income Tax, Karnataka-II, ILR (1988) KAR 2012. In the said judgment this Court took the view that construction of roads by the assessee under the scheme sponsored by the State Government was revenue in nature as it facilitated the assessee's business, and enabled the assessee to carry on the same with greater efficiency and profitability. It was held that even though the construction of the road had conferred upon the assessee an enduring advantage for its business, it did not secure any tangible or intangible asset. Further because the advantage gained by the assessee was chiefly to facilitate the assessee's business operation with greater efficiency and profitability without touching the fixed capital of the assessee, the expenditure could only be treated to be revenue in nature. 33. Two other judgments relied upon by Empire Jute Co. Ltd. Vs. Commissioner of Income Tax, AIR 1980 SC 1946 and Alembic Chemical Works Ltd. vs. CIT : [1989] 177 ITR 377 (SC), may also be noticed at this stage. In the former, the Supreme Court was considering the question as to whether the expenditure incurred by the assessee on the purchase of loom hours for working of the looms constituted a capital expenditure. Repelling the contention that the expenditure had acquired for the assessee an advantage of an enduring nature in the capital field, their Lordships held that the assessee had at best acquired only an advantage in the nature of a relaxation of a restriction on working hours imposed by the working time agreement thereby enabling the assessee to operate its profit earning structure for a longer number of hours. A distinction was drawn between profit earning structure of the assessee on the one hand and the operation of the profit earning structure for longer hours on the other. Acquisition of more working hours was held to be falling in the second category and, therefore, did not amount to acquisition of a capital asset. A distinction was drawn between profit earning structure of the assessee on the one hand and the operation of the profit earning structure for longer hours on the other. Acquisition of more working hours was held to be falling in the second category and, therefore, did not amount to acquisition of a capital asset. Seen from the point of view of the Revenue, the answer given by their Lordships in the Supreme Court in Empire Jute Company's case (supra) ought to have gone in its favour, for, according to the Revenue it could be said that the expenditure made by the assessee had acquired for the assessee an enduring benefit. This was not, however, so and the distinction made between the profit earning structure of the assessee and its utilisation was invoked to hold that the acquisition of the advantage notwithstanding the same was not in the capital field. 34. Similarly, in the Alembic Chemical Works case (supra) the distinction between revenue and capital expenditure was stated in the following terms : ".......... the distinction between revenue and capital corresponds with the distinction between the 'business entity, structure or organisation set up or established for the earning of profit' on the one hand and 'the process by which an organisation operates to obtain regular returns' on the other hand...... ". Applying the rationable of the aforesaid two judgments, to the facts of the instant case, it is fairly obvious that the payment made by the assessee to GEC did not make any augmentation in the profit making structure but simply brought about a change in the process by which the organisation operated or facilitated such operations. 35. In J.K. Cotton Manufacturers Ltd. Vs. Commissioner of Income Tax, Lucknow, AIR 1975 SC 1945 the Supreme Court was dealing with the question whether compensation paid to an outgoing managing agent, was capital in nature. The Court held that the payment was capital in nature because both the incoming and the outgoing managing agents belonged to the family of the assessee and because there was no evidence to show that the agency had been terminated on account of its becoming onerous or difficult. The payment was on the contrary found to have been made for the benefit of both the outgoing and incoming agents, who were closely associated with the assessee. This is not however the position in the instant case. The payment was on the contrary found to have been made for the benefit of both the outgoing and incoming agents, who were closely associated with the assessee. This is not however the position in the instant case. Here the Tribunal has returned a finding that the continuation of GEC as MICO's sole distributor was commercially disadvantageous for the latter and the termination of the distributorship would according to it, benefit the assessee. The theory of extraneous considerations propounded by the Revenue has been rejected by the Tribunal and rightly so for there was hardly any material to substantiate the same. It is, therefore, difficult to see how the view taken by the Supreme Court in the peculiar facts and circumstances of the above case would have any application to the instant case particularly in view of the following observations made in the said judgment : "We would, however, like to make it clear that we have held that the compensation paid to the outgoing agents in the peculiar facts of the present case amounts to capital expenditure. But we should not be understood as laying down a general rule that in all cases where compensation is paid to the managing agent whose agency is terminated, it would amount to capital expenditure." 36. Reference may also be made to the following few lines of the judgment which appear to us to be quite apposite to the case at hand : "This is not a case where the appellant reduced its expenditure by doing away with the middleman's profit, e.g., to get rid of the managing agency and taking the managing agency itself". 37. A reference may also be made to the Supreme Court decision in COMMISSIONER OF INCOME TAX, CENTRAL, BOMBAY Vs. JALAN TRADING CO. P. LTD., (1985) 155 ITR 536 SC, heavy reliance whereupon was placed by Mr. Sheshachala who appeared on behalf of the Revenue with Mr. Dattu. That was a case where the assessee had taken over under a deed of assignment the benefit of a sole-selling agency and agreed to pay to the assignor in consideration of the assignment a royalty of 75% of its profits. The assessee claimed the payment as a deduction against its income which claim was disallowed by the IT authorities including the Tribunal on the ground that the amount was spent for acquiring an asset for enduring benefit. The assessee claimed the payment as a deduction against its income which claim was disallowed by the IT authorities including the Tribunal on the ground that the amount was spent for acquiring an asset for enduring benefit. The High Court had negatived the assessee's stand that no enduring asset was acquired, and yet allowed the deduction of the amounts paid towards the acquisition of a capital asset on the ground that the payment had been made in a recurring manner for an indefinite period. The Supreme Court reversed the view taken by the High Court and held that on the findings returned a capital asset had been acquired under the arrangement. The Court observed that the assessee was a new company and had no other business. Under the contract in question it acquired the right to carry on the business on a long term basis upon payment of the stipulated sum representing 75% of its net annual profits. The test laid down in Assam Bengal Cement's case (supra) that the expenditure was made for the initial outlay was held applicable to the case, resulting in the disallowance of the expenditure on the ground that the asset acquired was capital in nature. The case before the Supreme Court was, therefore, clearly distinguishable in many respects from the case on hand. There the assessee was a new company, had obtained by assignment a sole selling agency, the sole selling agency was renewable for an indefinite period and the assessee had no other business which implied that the payment was being made as an initial outlay. This, however, is not the position in the instant case nor can the view taken by the Supreme Court be said to be applicable to the same. 38. In the light of what has been noticed above, it is not possible to hold that an advantage like the one MICO acquired in the present case could be said to be in the capital field, assuming for the sake of argument that the protocol was in existence and the payment in question was made only with a view to prematurely terminate the same. It is difficult for us to accept the rather broadly stated proposition canvassed by Mr. Dattu, that all that is required for an expenditure to be capital in nature is the acquisition of an advantage regardless of the nature thereof. It is difficult for us to accept the rather broadly stated proposition canvassed by Mr. Dattu, that all that is required for an expenditure to be capital in nature is the acquisition of an advantage regardless of the nature thereof. The argument advanced is sustainable neither on principle nor the authority of decided cases cited before us. 39. That brings us to the other limb of Mr. Dattu's submissions. It was argued that in the absence of any legal obligation to pay any compensation to GEC, the expenditure in question was not an allowable deduction. The payment was, according to Mr. Dattu, gratuitous in nature made otherwise than for purposes of business and not guided by any commercial expediency, so as to qualify for being termed as a revenue expenditure. Reliance was placed in this regard upon the decisions of the Supreme Court in Commissioner of Income Tax and Excess Profits Tax, Andhra Pradesh Vs. Jaganmohan Rao and Others, (1970) 75 ITR 373 SC, Commissioner of Income Tax, Kerala Vs. Malayalam Plantation Ltd., AIR 1964 SC 1722 , Dharamvir Dhir Vs. The Commissioner of Income Tax, Bihar and Orissa, AIR 1961 SC 668 , Commissioner of Income Tax, Punjab, Haryana, J. and K., H.P. and Union Territory of Chandigarh Vs. Panipat Woollen and General Mills Co. Ltd., AIR 1976 SC 640 a and The Commissioner of Income Tax, Bombay Vs. Chandulal Keshavlal and Co., Petlad, AIR 1960 SC 738 . We have given our anxious consideration to the submission made by Mr. Dattu, but find that none of the decisions relied upon by the learned counsel bears any analogy to the facts of the instant case. 40. In Jaganmohan Rao's case (supra) the payment made by the assessee was with a view to perfect the assessee's title to a capital asset like a mill. It was in that context held that any money paid to perfect a title or as consideration for getting rid of a defect in the title or a threat of litigation would constitute a capital and not a revenue expenditure. This is not the position in the present case where no tangible capital asset is involved nor is there any payment for perfecting title to the same. Mr. This is not the position in the present case where no tangible capital asset is involved nor is there any payment for perfecting title to the same. Mr. Dattu's submission that a payment made under threat of litigation as in the instant case should by itself make it an expenditure of a capital nature is too broad a proposition to be accepted. The threat of litigation referred to in the above judgment related to a capital asset like the mill, which is not the position here. 41. In Malayalam Plantation's case (supra) the controversy related to the payment of estate duty by a resident company incorporated outside India on the death of its share holders who were not domiciled In India. The Court held that the expenditure was not incurred for purposes of the assessee's business. This case is, therefore, distinguishable from the present. 42. In Dharamvir Dhir's case (supra) while the High Court had rejected the assessee's claim for a deduction on the ground that the payment was not made for business consideration, the Supreme Court held to the contrary. Their Lordships found that the agreement between the assessee and the trust who had advanced money to the assessee was in the nature of a joint adventure and that the payment made was by way of division of profits. The Court recognised the principle that even if the payment was voluntary, so long as the expenditure was incurred for the assessee's benefit, e.g., for carrying on his business, the deduction would be allowable. The decision does not lend any support to the case of the Revenue, for the argument that a payment made voluntarily and without any legal obligation can never be treated to be a revenue expenditure, stands repelled by the same. What is important is not whether the payment was voluntary or otherwise, but whether the same was incurred for the assessee's benefit. Seen in the light of the finding of the Tribunal that the payment was made by MICO on the grounds of commercial expediency the judgment in Dhir's case (supra) supports the assessee's case more than it does the Revenue. 43. CIT vs. Panipat Woollen & General Mills Co. Seen in the light of the finding of the Tribunal that the payment was made by MICO on the grounds of commercial expediency the judgment in Dhir's case (supra) supports the assessee's case more than it does the Revenue. 43. CIT vs. Panipat Woollen & General Mills Co. Ltd. (supra), was a case where the Supreme Court was considering the question of deduction of an amount paid by the assessee to its sole selling agents under an agreement whereunder in consideration of investments made in the assessee's working capital required for its plant, the selling agent were to be given 50% of the profits of such plant and were also liable to bear 50% of its losses. The Tribunal disallowed the assessee's plea on the ground that the payments were a mere distribution of profits of a joint venture between the assessee and the sole selling agent and could not, therefore, be deemed to be a revenue expenditure. The High Court reversed this view and held that the amounts constituted expenditure incurred by the assessee for his business. The Supreme Court however, reversed the decision of the High Court and restored that of the Tribunal holding that the amounts were merely division of profits after they had been earned from the joint venture and could not, therefore, be regarded as expense incurred by the company. On the facts the decision of the Supreme Court is clearly distinguishable from the instant case. So also is the position with CIT vs. Chandulal Keshavalal & Company (supra) where the Supreme Court held on the basis of the finding returned by the Tribunal that the amounts remitted by a managing agent out of the commission due to it was necessitated by commercial expediency and was, therefore, deductible. It was held that the question of commercial expediency and the fact whether the amount is wholly and exclusively incurred for the purpose of business is a question of fact to be determined by the Tribunal. The following passage from the judgment states the relevant test : "If the expense is incurred for fostering the business of another only or was made by way of distribution of profits or was wholly gratuitous or for some improper or oblique purpose outside the course of business then the expense is not deductible. The following passage from the judgment states the relevant test : "If the expense is incurred for fostering the business of another only or was made by way of distribution of profits or was wholly gratuitous or for some improper or oblique purpose outside the course of business then the expense is not deductible. In deciding whether a payment of money is a deductible expenditure, one has to take into consideration questions of commercial expediency and the principles of ordinary commercial trading. If the payment or expenditure is incurred for the purpose of the trade of the assessee it does not matter that the payment may inure to the benefit of a third party. Another test is whether the transaction is properly entered into as a part of the assessee's legitimate commercial undertaking in order to facilitate the carrying on of its business; and it is immaterial that a third party also benefits thereby. But, in every case it is a question of fact whether the expenditure was expended wholly and exclusively for the purpose of the trade or business of the assessee." 44. In the instant case the finding returned by the Tribunal is that the MICO had taken a bona fide commercial decision to make the payment of the amount in question for otherwise it would have been faced with protracted litigation causing disruption in the distribution of its products. The Tribunal has found that the GEC had been operating in this territory for over 20 years and due to its dominance in the area was in a position to seriously prejudice the respondent's business if the distributorship were to be prematurely terminated without compensation. It has further held that the bona fides behind the decision taken by the assessee were established by the subsequent events, according to which as against a projected profit at Rs. 1,50,000 the company made an actual profit at Rs. 1,96,000. With the said findings in the background, it is difficult to see how the view taken by the Tribunal can be said to be in any way erroneous. 45. It is not difficult to conceive of cases where the legal liability of the employer may be doubtful, and yet the employer may like to take a view in the matter based on commercial expediency and not on the basis of what the Court may ultimately decide. 45. It is not difficult to conceive of cases where the legal liability of the employer may be doubtful, and yet the employer may like to take a view in the matter based on commercial expediency and not on the basis of what the Court may ultimately decide. The employer's right to use his own judgment and act as a prudent businessman, cannot be denied for it is he who knows what is best for his business and its promotion. Legal liability to pay or the compulsion of circumstances to incur an expenditure is one thing while the commercial expediency to do so totally different. A businessman may find it commercially expedient to make the payment even when it is, strictly speaking, not obliged to make any such payment, and should such a decision be taken by him the same has to be respected so long as it is not proved to be so utterly irrational or far removed from the realities that it would look like a device adopted to evade taxes. Ample support is available for this view from the decision of the Supreme Court in Eastern Investments Ltd. Vs. Commissioner of Income Tax, West Bengal, AIR 1951 SC 278 where the Court held that it did not matter whether the company was right in its view or wrong and in any event the Court was in no position to judge the soundness of its decision. Consideration of this kind, it was observed, go deeper than the apparent profit or loss on an isolated transaction standing by itself. To the same effect is the decision of the apex Court in Commissioner of Income Tax, West Bengal I Vs. Birla Brothers P. Ltd., AIR 1972 SC 19 reliance whereupon was placed by both Mr. Dastur and Dattu. The following observations made in the judgment clearly accept the view that commercial expediency of a decision taken by a businessman cannot be decided on the touch stone of strict legalities of the liability discharged : "Deductibility of such expenditure does not depend on the final outcome of those proceedings. However wrong-headed, ill-advised, unduly optimistic or over-confident in his convictions the assessee might appear in the light of the ultimate decision, expenditure in prosecuting a civil proceeding cannot be denied as a permissible deduction if it is reasonably and honestly incurred to promote the interest of the business. 46. However wrong-headed, ill-advised, unduly optimistic or over-confident in his convictions the assessee might appear in the light of the ultimate decision, expenditure in prosecuting a civil proceeding cannot be denied as a permissible deduction if it is reasonably and honestly incurred to promote the interest of the business. 46. In Commissioner of Income Tax, Andhra Pradesh Vs. Dhanrajgiri Raja Narasingirji, AIR 1974 SC 1366 an assessee had engaged his own lawyer even when the Government was conducting the prosecution. The expenses on the engagement of the lawyer was claimed as an admissible deduction. The Revenue argued that it was unnecessary for the assessee to have supplemented the Government effort by engaging another counsel and that the expenditure incurred on any such unnecessary exercise was not an admissible deduction. Repelling the contention the Court observed thus : "The contention that, as the Government was conducting the prosecution, there was no necessity for the assessee to engage his own lawyers is not substantial. It was for the assessee to decide how best to protect his own interest. It was the duty of the assessee to see that the prosecution was properly conducted. He was interested in successfully prosecuting the case. The fact that he did not leave the carriage of the case in the hands of the prosecuting agency of the Government is no ground for disallowing the expenditure. It is not open to the Department to prescribe what expenditure as assessee should incur and in what circumstances he should incur that expenditure. Every businessman knows his interest best". The legal position as stated in the above decisions, can thus be said to be fairly well settled, namely, the commercial expediency of a businessman's decision to incur an expenditure cannot be tested on the touchstone of strict legal liability to incur such an expenditure. Such decisions in the very nature of things have to be taken from business point of view and have to be respected by the authorities no matter it may appear to the latter that the expenditure incurred was unnecessary or avoidable. 47. Such decisions in the very nature of things have to be taken from business point of view and have to be respected by the authorities no matter it may appear to the latter that the expenditure incurred was unnecessary or avoidable. 47. In Anglo Persian Oil Company Ltd. vs. Dale 16 TC 253, which has been quoted with approval by the Supreme Court in Assam Bengal Cement Company's case (supra), it was held that even if the assessee had been mistaken in its policy and the removal of an agent had increased the working expenses instead of diminishing the same the payment made to any such agent would still be a payment towards the working expense and as such chargeable to revenue. Reference may also be made to Commissioner of Income Tax, U.P. Vs. Nainital Bank Ltd., AIR 1967 SC 453 where the Supreme Court held that even when the bank was under no liability to pay to the constituents the value of the jewellery pledged, yet in order to maintain the confidence of its constituents, the decision taken by the management to make such payment with a view to preserve the goodwill of its business and its relations with the clientele would constitute a revenue expenditure, for the same had been laid out for the purpose of its business. To the same effect is the judgment of the Bombay High Court in Commissioner of Income Tax, City-I Vs. Glaxo Laboratories (India) P. Ltd., (1978) 114 ITR 110 Bom where on the termination of the agency of the agent the distribution work was to be undertaken by the assesses-company itself the Court held that any payment made to operate within the area which was originally serviced by the agent for a proper transition from distribution originally made by the agent to direct distribution to be made by the assessee, was justified by commercial expediency and was, therefore, a revenue expenditure. It was held that the object behind making such a payment was to see that the work of direct distribution of the products of the assesses-company went on without let or hindrance on the part of the agent who had earlier worked in the same field. 48. In the instant case, while the protocol dt. It was held that the object behind making such a payment was to see that the work of direct distribution of the products of the assesses-company went on without let or hindrance on the part of the agent who had earlier worked in the same field. 48. In the instant case, while the protocol dt. 28th Jan., 1972 stood superseded and the agreement itself did not entitle the GEC to insist upon a renewal with the result that strictly speaking GEC may not have had any legal claim against MICO, yet in order to ensure a smooth transition from marketing through a sole distributor to a marketing by the company itself, the payment made to the erstwhile distributor was sufficiently justified by the considerations of commercial expediency. The payment was made without touching the assessee's fixed capital and only with a view to accelerating the take over of the GEC's territory. It was a payment which MICO made for terminating a disadvantageous commercial relationship with GEC which relationship even though non-existent on a true and strictly legalistic view of the matter was nevertheless, believed by the parties to be subsisting in a greater or lesser measure. From the point of view of MICO the payment was considered expedient to remove a restriction in its right to operate in northern territory without any let or hindrance from the erstwhile sole distributor - a situation very much similar to Bikaner Gypsums Ltd. Vs. Commissioner of Income Tax, Rajasthan, AIR 1991 SC 227 , where the Supreme Court made the following significant observations : "The amount was spent on the removal of a restriction which obstructed the carrying on of the business of mining within a particular area in respect of which the appellant had already acquired mining rights. The payment of Rs. 3 lakhs was not made for initiating the business of mining operations or for acquiring any right; the payment was made for shifting the railway station track, etc., i.e., to remove an obstruction to facilitate the business of mining, and it did not bring into existence any advantage of an enduring nature. The expenditure was on revenue account." 49. In the result while our answer to questions No. 1 and 3 referred to us by the Tribunal is in the affirmative and against the Revenue, the answer to question No. 2 is in the negative. The expenditure was on revenue account." 49. In the result while our answer to questions No. 1 and 3 referred to us by the Tribunal is in the affirmative and against the Revenue, the answer to question No. 2 is in the negative. The net effect however is that the Tribunal was right in holding that the payment of the amount of Rs. 99 lakhs by MICO to GEC was an allowable deduction under s. 37 of the IT Act. The reference is disposed of accordingly.