Exclusive right to collect chanks treated as revenue expenditure and allowed as a business deduction.

Expenditure paid for the exclusive right to collect chanks was held to be revenue in character, not capital outlay, under the distinction between capital and revenue expenditure. The decisive test was whether the payment secured an asset or enduring advantage, or only rights over circulating capital. Because the assessee acquired merely the right to win and take chanks for business purposes, without any interest in the sea or the source of supply, the contract was treated as analogous to purchase of goods rather than acquisition of a fixed asset. The amount was therefore deductible as business expenditure and the reference was answered for the assessee.

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Issues: Whether the amount paid for the exclusive right to collect chanks was capital expenditure or revenue expenditure deductible in computing business income.

Analysis: The payment was examined in the context of the distinction between capital and revenue outlay under section 10(2)(xv). The decisive enquiry was whether the assessee acquired a fixed asset or enduring advantage, or merely obtained goods forming part of circulating capital. The Court applied the principle that expenditure is capital only when it brings into existence an asset or advantage of enduring benefit, and held that the contract conferred only the right to win and take chanks, not any interest in the sea or its source. The transaction was treated as analogous to the purchase of goods rather than the acquisition of the source from which the goods were obtained.

Conclusion: The payment was revenue expenditure and was allowable as a deduction; the issue was decided in favour of the assessee.

Final Conclusion: The reference was answered for the assessee, and the disputed amount was held to be deductible business expenditure rather than capital outlay.

Ratio Decidendi: Where an assessee acquires only the right to obtain and take away goods for business purposes, without acquiring the source or any enduring asset, the expenditure is revenue in character and deductible.

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