Capital expenditure on acquiring a profit-yielding asset was not deductible as revenue expenditure in this managing agency dispute.

Expenditure incurred to acquire another partner's interest in a managing agency firm was treated as capital expenditure because it secured the assessee's exclusive benefit in a profit-yielding asset and gave an enduring advantage. The payment was not a fresh capital contribution to augment partnership profits, but consideration for obtaining a capital asset capable of generating income. It was therefore not deductible as revenue expenditure.

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Issues: Whether the sum paid by the assessee for acquiring another partner's interest in the managing agency firm was capital expenditure or revenue expenditure.

Analysis: The payment was made for the assessee's exclusive benefit to acquire the other partner's share in a profit-yielding asset, namely the managing agency interest in the firm. The transaction was not an injection of fresh capital into the partnership to augment profits, but an expenditure incurred to obtain an enduring advantage in the form of a capital asset capable of yielding income.

Conclusion: The amount was properly treated as capital expenditure and was not deductible as revenue expenditure.

Ratio Decidendi: Expenditure incurred to acquire an income-producing or profit-yielding asset for the assessee's exclusive benefit is capital expenditure, not revenue expenditure.

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