Lease payments for quarry rights treated as capital expenditure, not deductible as revenue outlay.

Lease money paid to obtain quarry rights was held to be capital expenditure rather than revenue expenditure deductible under section 10(2)(xv) of the Indian Income-tax Act, 1922. The deduction provision was confined to expenditure incurred wholly and exclusively for business, and it did not cover payments that secured an enduring business advantage or the source of trading activity. On the facts, the assessee acquired the right to extract stones and sell them, not raw material for manufacture. The payments therefore represented acquisition of a capital asset or source of income and were not allowable as a revenue deduction.

---

---

Issues: Whether lease money paid for quarry rights was capital expenditure or revenue expenditure deductible under section 10(2)(xv) of the Indian Income-tax Act, 1922.

Analysis: The deduction under section 10(2)(xv) is confined to expenditure laid out wholly and exclusively for business and does not extend to capital expenditure. The distinction drawn was that expenditure for acquiring a business right or an advantage of enduring character is capital, whereas payment for circulating capital or stock-in-trade may be revenue. On the facts, the assessee did not purchase raw material for a manufacturing business; it acquired a right to extract stones from quarries and to sell them. The authorities dealing with leases for earth, shells, or other materials used in manufacturing were distinguished because those cases involved acquisition of raw material for manufacture. Here, the lease payments secured the very source from which the assessee carried on its trading activity and therefore represented outlay of a capital nature.

Conclusion: The lease money was capital expenditure and was not allowable as a revenue deduction.

---