Exclusive fishing rights and enduring business advantage distinguished capital expenditure from deductible revenue outlay.

A lease payment made for the exclusive right to fish for and carry away chanks was treated by the majority as capital expenditure, because it secured an enduring business advantage and the source from which trading goods could be obtained, rather than stock-in-trade itself. The right was viewed as part of the capital structure needed to carry on the business, so the amount was not deductible as revenue expenditure under section 10(2)(xv) of the Income-tax Act, 1922. The dissent considered the payment to be for obtaining stock-in-trade and therefore revenue in nature.

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Issues: Whether the lease payment for the exclusive right to fish for and carry away chanks constituted capital expenditure or revenue expenditure deductible in computing business income under section 10(2)(xv) of the Income-tax Act, 1922.

Analysis: The majority held that the payment was made to acquire an enduring business advantage in the form of an exclusive and long-term right to fish in specified waters, rather than to acquire chanks as stock-in-trade in the ordinary course of purchase and sale. The right obtained was not merely ancillary to the acquisition of goods but was itself the source from which the goods might be obtained, and the payment was therefore referable to capital structure rather than current working expenses. The majority distinguished cases where the assessee merely purchased raw materials or goods for resale, and treated the lease as securing a capital asset necessary for carrying on that mode of business.

Conclusion: The lease rent was capital expenditure and was not allowable as a revenue deduction.

Dissenting Opinion: S. K. Das J. held that the payment was made wholly and exclusively for obtaining stock-in-trade, that the agreement granted no interest in the sea or sea-bed, and that the transaction was in substance comparable to purchasing goods for resale. On that view, the amount was revenue expenditure and deductible.

Final Conclusion: The appeal succeeded because the disputed payment was treated as capital in nature, so the assessee was denied the deduction claimed.

Ratio Decidendi: A payment made to secure a long-term exclusive right that constitutes the source of acquisition of trading goods, and which confers an enduring advantage in the business, is capital expenditure rather than revenue expenditure.

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