Export quota payments to retired partner treated as revenue expenditure, not capital outlay, on the true character of the payment.

Amounts paid to a retired partner for temporary use of export quota pending separate re-allocation were held to be revenue expenditure. The court treated the payments as consideration for continued use of an existing quota arrangement, not as a capital outlay to acquire an enduring asset or fresh quota rights. Computation of the amount by reference to profits did not alter its character, because the relevant test was the quality of the payment rather than its measure. The expenditure was therefore deductible as part of the cost of goods purchased for export and was not capital in nature.

---

---

Issues: Whether the amounts paid to a retired partner for the temporary use of export quota pending separate re-allocation were deductible as business expenditure, or were capital payments made to acquire a capital asset.

Analysis: The payments were made under an agreement after the partner had already retired from the firm. The amounts were not paid to acquire any enduring asset or fresh quota rights for the assessee, but for continued use of the existing export quota until separate allocation was made. The fact that the amounts were computed with reference to profits did not change their character, because the test was the quality of the payment and not its measure. On the facts, the expenditure was in the nature of an addition to the cost of goods purchased for export and was not capital in nature.

Conclusion: The payments were allowable deductions as revenue expenditure and not disallowable as capital expenditure.

---