Capital expenditure principle applied to mining rights payments securing a lasting source of raw material, not deductible as revenue outlay.

Annual payments made to secure the right to enter land, prospect, win and quarry limestone, and then manufacture lime, were treated as capital expenditure rather than revenue outlay. The right acquired was not merely a purchase of raw material for current use, but a source and means of obtaining the raw material itself, conferring an advantage of enduring benefit in the nature of a capital asset. The periodic character of the payment did not change its essential nature. The amount was therefore not deductible as revenue expenditure under section 10(2)(xv) of the Indian Income-tax Act, 1922.

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Issues: Whether the annual payment of Rs. 96,000 made by the assessee for the right to extract limestone and manufacture lime was revenue expenditure deductible under section 10(2)(xv) of the Indian Income-tax Act, 1922, or capital expenditure.

Analysis: The assessee's business was not confined to manufacture of lime but included prospecting, winning, and quarrying limestone under the mining arrangement. The right acquired was not a purchase of limestone as stock-in-trade, but a right to enter upon the land, search for and extract mineral deposits, and work them into lime. The payment was not a mere price for raw material in transit; it secured a source and means of obtaining the raw material itself. The Court held that the periodic nature of the payment did not alter its character, because the dominant consideration was that the right acquired conferred an advantage of enduring benefit in the nature of a capital asset.

Conclusion: The payment of Rs. 96,000 was capital expenditure and not an allowable revenue deduction.

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