Capital expenditure on forest lease extension secures an enduring source of stock-in-trade, not a revenue deduction.

Payment made to extend forest-leasing rights and secure a continuing source of timber was held to be capital expenditure, not revenue expenditure. The assessee did not acquire timber already held as stock-in-trade; instead, it obtained the right to enter the forest, mark and fell trees, and convert them into sleepers over time. Because the additional royalty or back-royalty was paid in consideration of extending the leases and conferred an enduring business advantage, it was attributable to acquisition of a capital asset rather than day-to-day trading operations. The amount was therefore not allowable as a revenue deduction.

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Issues: Whether the sum of Rs. 83,157 paid as additional royalty or back-royalty for extension of forest-leasing rights was allowable as a revenue expenditure.

Analysis: The payment was not made as the price of timber already acquired as stock-in-trade. The arrangements showed that what the assessee obtained was a right to enter the forest, have trees marked, fell them, and convert them into sleepers over a period of years, thereby securing a source from which stock-in-trade could later be obtained. The payment was made in consideration of the extension of the existing leases and conferred a business advantage of enduring nature. On that footing, the expenditure was attributable to the acquisition of a capital asset rather than to the day-to-day carrying on of the trading operations.

Conclusion: The amount of Rs. 83,157 was not allowable as revenue expenditure; it was capital in nature and the answer to the reference was in the negative.

Ratio Decidendi: A payment made to secure or extend a source from which stock-in-trade may later be obtained, and which confers an enduring business advantage, is capital expenditure and not revenue expenditure.

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