Goodwill-linked tenancy payment treated as capital expenditure, not deductible revenue outlay, because it secured an enduring advantage.

A payment made under a factory tenancy arrangement was treated as capital expenditure where the assessee undertook to clear arrears of rent and penalty in exchange for the earlier firm waiving any claim to goodwill. The court construed the arrangement as one by which the assessee effectively acquired the benefit of the goodwill and tenancy, so the amount was not merely a discharge of past rent liability. Because the payment secured an enduring advantage, it was characterised as an capital outlay and denied deduction as revenue expenditure.

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Issues: Whether the amount of Rs. 34,665 paid by the assessee towards arrears of rent was capital expenditure or deductible revenue expenditure.

Analysis: The agreement under which the factory tenancy was taken contained clauses showing that the assessee undertook to clear the arrears of rent and penalty in relation to the factory, while the earlier firm waived any claim to goodwill. On a construction of the arrangement, the payment was not merely discharging an outstanding rent liability for the previous period. It was made in substance for acquiring the benefit of goodwill and the tenancy arrangement from the earlier firm, which gave the payment the character of an enduring capital outlay rather than a revenue charge.

Conclusion: The sum of Rs. 34,665 was capital expenditure and not allowable as a deduction, and the question was answered in the affirmative against the assessee.

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