B.P. Australia Ltd. v. Commissioner of Taxation of the Commonwealth of Australia, [1966] A.C. 224 (PC)

The taxpayer, along with other oil companies, paid lump sums to service station owners in consideration for the owners' agreement to deal exclusively with the oil companies for a fixed number of years (generally, five years, but ranging up to 20 years). The payments were fully deductible given that: the only ultimate reason for their being made was to maintain or increase gallonage; the payments would be expected to be returned "penny by penny" during the term of the agreements through increased sales (p. 266); the benefit derived "was to be used in the continuous and recurrent struggle to get orders and sell petrol" (p. 273); and they were made on a recurring basis in the sense that every five years (on average) further payments would be required in order to secure the same advantage. Because the term of the agreements were part-way between what would have been short-term (two or three years) and what would have been long-term (twenty years), the term of the agreements was a neutral factor.

Before finding that payments which the taxpayer made to service stations in order to secure their agreement to deal exclusively with the taxpayer and other oil companies were deductible on income account, Lord Pearce stated (p. 270):

It is of commercial importance that profits should not be inflated for tax purposes by the artificial withdrawal from the profit and loss account of expenditure directly incurred in earning them unless it is of a truly capital nature.