Revenue expenditure test: payment for a temporary business right to obtain raw material was deductible, not capital in nature.

Payment made to secure the right to carry on a trading operation and obtain raw material for business purposes was treated as revenue expenditure, not capital expenditure. The decisive test was the true character of the outlay: an amount spent to acquire an enduring asset or advantage is capital, but an amount laid out in the ordinary course of earning profits is revenue. Because the arrangement for supplying gulmohwa flower was short-term, working in nature, and did not create any permanent source of income or enduring capital asset, the expenditure was held deductible under section 10(2)(xv).

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Issues: Whether the amount of Rs. 12,000 paid by the assessee for taking over the contract to supply gulmohwa flower was capital expenditure or revenue expenditure, and therefore deductible under section 10(2)(xv) of the Indian Income-tax Act.

Analysis: The decisive question was the true character and purpose of the outlay. Expenditure incurred to acquire an asset or advantage of an enduring nature is capital, while expenditure laid out as part of the ordinary process of earning profits is revenue. Applying that distinction, the payment here was made to obtain the right to carry on the business of supplying gulmohwa flower, which functioned as the raw material or stock-in-trade of the assessee's business. The arrangement was of a short-term, working nature and did not create any permanent source of income or enduring capital asset. The circumstances were treated as analogous to cases where the assessee acquires raw materials or a temporary right to gather them for business purposes, rather than a part of the fixed capital of the concern.

Conclusion: The amount was revenue expenditure and was allowable as a deduction under section 10(2)(xv); the answer to the reference was in favour of the assessee.

Ratio Decidendi: An outlay made to obtain a temporary business right or source of raw material for carrying on trading operations, without acquiring an enduring capital asset, is revenue expenditure deductible in computing business income.

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