Mining rights as capital expenditure: payments to secure mica-winning rights were not deductible as revenue outlay.

Payments made under mining agreements to secure rights to win mica were held to be capital expenditure, not revenue expenditure deductible under Section 10(2) of the Indian Income-tax Act. The decisive test was the true nature of the outlay: expenditure incurred once and for all to acquire an asset or an enduring advantage for the business is capital in character. Because the agreements gave the assessee mining rights in specified areas for several years, they formed part of the profit-making structure rather than a mere purchase of raw material. The amounts were therefore not allowable as a business deduction.

---

---

Issues: Whether the amounts paid under the mining agreements for acquiring rights to win mica were allowable as a deduction as revenue expenditure under Section 10(2) of the Indian Income-tax Act, or were capital expenditure.

Analysis: The payments were made to acquire mining rights in specified areas for terms extending over several years. The decisive inquiry was the true nature of the outlay, namely whether it was incurred in the course of carrying on the business or for acquiring rights and advantages of an enduring character. The Court applied the settled distinction between revenue and capital expenditure, emphasising that expenditure made once and for all to obtain an asset or advantage for the enduring benefit of the trade is capital in nature. The assessee's business was not manufacturing in the sense of purchasing raw material from the market; it was the business of winning mica and selling it. The agreements did not amount to a mere purchase of raw material, but secured mining rights which constituted part of the profit-making structure of the business.

Conclusion: The payments were capital expenditure and were not allowable as a deduction under Section 10(2) of the Indian Income-tax Act.

---