Capital expenditure on leasehold advantage held non-deductible where lump sum secured exclusive retail outlets.

Lump sum payments made to obtain a head lease and secure an exclusive supply tie through a sublease were treated as capital expenditure, because they were paid once and for all to acquire a leasehold advantage of enduring benefit. The arrangement created a permanent commercial asset in the form of tied retail outlets for a defined term, rather than a mere rebate of trading expenses. Calculation of the amount by reference to estimated gallonage did not alter its true character. On legal form and business substance, the payments were held to be capital in nature and not deductible as revenue expenditure.

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Issues: Whether the lump sum payments made for obtaining a head lease and securing an exclusive supply tie through a sublease were capital expenditure or revenue expenditure for income tax purposes.

Analysis: The payments were made once and for all to acquire a leasehold advantage of enduring benefit, namely an exclusive outlet for the taxpayer's products for a defined term. The arrangement was not a mere rebate of trading expenditure, but a premium paid to secure a permanent commercial asset in the form of tied retail outlets. The fact that the amount was calculated by reference to estimated gallonage did not change the true character of the payment. On both legal form and business substance, the expenditure was incurred to acquire a capital asset and not as part of the circulating expenses of the trade.

Conclusion: The lump sum payments were capital in nature and were not deductible as revenue expenditure.

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