Revenue vs capital expenditure: prospecting and maintenance costs of an inactive mining operation held deductible against other business profits.

Prospecting and maintenance costs incurred to test and potentially restart an existing mica mining business after cyclone-induced stoppage were treated as revenue expenditure where expenses (salaries, wages, legal costs, depreciation) were incurred in continuing efforts to carry on the mining business alongside the company's other activities; the period of inactivity and eventual non-resumption did not convert such expenditure into capital outlay. Operative effect: such expenditures are deductible against profits of the assessee's other business as revenue losses.

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Issues: Whether expenditure incurred in prospecting and maintaining an inactive mica mining operation with the intention of resuming production is allowable as a deduction against the profits of the assessee's other business under the Income-tax Act.

Analysis: The company carried on mica mining as one of its objects and maintained staff and prospecting activity after production was stopped by a cyclone. Expenses in the year in question consisted of salaries, wages, legal expenses and depreciation incurred in prospecting to ascertain whether production could be resumed. The presence of a period of inactivity and the subsequent non-resumption of production do not, on the facts, convert expenditures incurred to test or restart an existing business into capital expenditure. The expenditures were incurred in continuing efforts to carry on the mica business and were linked to the carrying on of that business alongside the company's other businesses.

Conclusion: The expenditure is deductible as a revenue loss against the profits and gains of the assessee's other business; conclusion in favour of the assessee.

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