Capital expenditure test: non-recurring payment to secure business control was not deductible as revenue expense.

A non-recurring payment made to secure control of a business and settle a partner's claim was held to be capital expenditure, not revenue expenditure deductible under section 10(2)(xv). The decisive test was whether the outlay was wholly and exclusively for the business and whether it created an enduring profit-making advantage. Because the payment secured the right to carry on the business and was not a routine operating expense, it was treated as capital in character and disallowed as a deduction.

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Issues: Whether the sum of Rs. 45,000 paid by the assessee to the other partner was capital expenditure or revenue expenditure deductible under section 10(2)(xv).

Analysis: The payment was made to obtain control of the canteen business and to settle the other partner's claim in relation to the business. The business was not carried on in a free market and had no assured continuity, so the payment could not be treated as one made to avoid competition or to acquire goodwill in the ordinary commercial sense. The decisive test was whether the amount was laid out wholly and exclusively for the purpose of the business and whether it was of a capital nature. Since the payment secured the assessee the right to carry on the business and represented a non-recurring outlay for acquiring a profit-making advantage, it was treated as capital in character rather than as a running business expense.

Conclusion: The payment was capital expenditure and was not admissible as a deduction under section 10(2)(xv); the question was answered against the assessee.

Ratio Decidendi: A non-recurring payment made to acquire or secure the right to carry on a business, or to obtain a profit-making advantage of enduring character, is capital expenditure and is not deductible as revenue expenditure under section 10(2)(xv).

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