Advance rent for a proposed lease is revenue expenditure, not capital outlay, when paid to facilitate business arrangements.

A payment made to secure a proposed cinema lease was treated as advance rent rather than salami or premium, because its true character was a deposit linked to an expected business lease arrangement and not consideration for acquiring a capital asset. On that basis, the amount was regarded as expenditure laid out wholly and exclusively for the purpose of earning business profits and was deductible in computing business income. The reference was answered in favour of the assessee.

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Issues: Whether the sum of Rs. 10,000 paid to secure a proposed cinema lease was a capital outlay by way of salami or premium, or an allowable revenue deduction as advance rent in computing business income.

Analysis: The payment was examined in the light of its true character and surrounding circumstances. It was treated as a deposit made in connection with a lease that was expected to come into existence, and not as a premium paid for acquiring a capital asset. On the facts, the amount represented an advance payment of rent made in the course of business to facilitate the proposed lease arrangement. A payment of that nature is laid out wholly and exclusively for the purpose of earning profits and falls within the deduction provision applicable to business expenditure.

Conclusion: The payment was an allowable deduction and the reference was answered in the affirmative, in favour of the assessee.

Ratio Decidendi: A payment made as advance rent in connection with a proposed lease is revenue expenditure allowable as a business deduction, whereas a payment made as salami or premium for acquiring the lease would be capital in nature.

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