Revenue expenditure on annual road-use payment held deductible as a business running expense, not capital outlay.

A recurring payment made annually for the business use of a motor road was held to be revenue expenditure because it was incurred out of current income, formed part of the running expenses of the business, and did not secure an asset or enduring advantage. The expenditure was attributable to carrying on the business and earning income during the year, rather than to the acquisition of capital or permanent goodwill. It was therefore admissible as a deduction under the relevant provision.

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Issues: Whether the sum of Rs. 5,000 paid under the agreement for the use of the motor road was capital expenditure or revenue expenditure and, if revenue expenditure, was deductible under Section 10(2)(xii) of the Indian Income-tax Act, 1922.

Analysis: The payment was made out of the year's income and recurred annually under the agreement. The nature of the expenditure had to be judged by whether it brought into existence an asset or advantage of enduring value, or whether it was part of the running expenses incurred to earn the profits of the year. On the facts, the payment was not a once-for-all acquisition of capital assets or permanent goodwill, but a recurring charge made for the business use of the road and for earning income during the year. The amount was therefore attributable to the process of carrying on the business rather than to the acquisition of capital.

Conclusion: The sum of Rs. 5,000 was revenue expenditure and was admissible as a deduction.

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