Revenue expenditure for securing timber stock and profit estimation in transport business were upheld on the facts found.

Payments made to eliminate competition in procuring timber were treated as revenue expenditure because they were incurred to secure trading stock for the assessee's business at an advantageous price and did not create an asset of enduring character. The deduction was therefore allowable in computing business income. On the transport business issue, the Tribunal's estimate of profits was supported by the material on record; minor errors in the figures did not displace the overall basis for the addition, which remained justified on the assessee's prior returns and the effective number of buses.

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Issues: (i) Whether payments made to eliminate competition in procuring timber were capital expenditure or revenue expenditure and deductible in computing business income. (ii) Whether the addition made to the assessee's transport business income was lawful on the facts found.

Issue (i): Whether payments made to eliminate competition in procuring timber were capital expenditure or revenue expenditure and deductible in computing business income.

Analysis: The payments were made to secure timber for the assessee's business at an advantageous price and formed part of the acquisition of stock-in-trade for the year. Applying the business test and the concept of an enduring advantage, the acquisition did not create a capital asset of enduring character. The expenditure was akin to the cost of obtaining raw material for trading purposes and fell on revenue account.

Conclusion: The expenditure was revenue expenditure and the deduction was allowable, in favour of the assessee.

Issue (ii): Whether the addition made to the assessee's transport business income was lawful on the facts found.

Analysis: The Tribunal's estimate of profits from the transport business was supported by the material on record notwithstanding minor errors in the figures relied on. On correction of those errors, the assessed addition still remained justified on the basis of the assessee's prior returns and the effective number of buses.

Conclusion: The addition was upheld and the answer to this question was against the assessee.

Final Conclusion: The reference was answered by allowing the deduction claim on the timber-trade issue while sustaining the addition in respect of the transport business.

Ratio Decidendi: Expenditure incurred to secure trading stock or raw material at an advantageous price is revenue expenditure if it does not bring into existence an asset of enduring character.

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