Revenue expenditure test applied to guarantor commission and deferred-payment interest; deduction allowed as business finance costs.

Commission paid to guarantors for deferred payment of plant and machinery, and interest on those deferred payments, were treated as revenue expenditure because they were incurred in connection with an existing business and finance used to facilitate the commercial undertaking. Applying the test whether the outgoing formed an integral part of the profit-earning process or brought into existence a permanent asset or advantage, the court found that the payments secured the use of money and enabled deferred payment, rather than acquiring a capital asset in themselves. The expenditure was therefore allowable as a deduction, and the reference was answered in favour of the assessee.

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Issues: Whether commission paid to guarantors for deferred payment of plant and machinery, and interest paid on such deferred payments, constituted revenue expenditure or capital expenditure.

Analysis: The expenditure was incurred in connection with an existing business and with finance obtained for acquiring and installing plant as part of the same commercial undertaking. The governing test was whether the outgoing was so related to the carrying on of the business as to form an integral part of the profit-earning process, or whether it brought into existence an asset or advantage of a permanent character. Applying that test, the commission and interest were held to be connected with securing the use of money and facilitating deferred payment, rather than acquiring a capital asset in themselves.

Conclusion: The expenditure was revenue in nature and allowable as a deduction; the answer to the reference was in favour of the assessee.

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