Capital expenditure on quarrying rights: exclusive long-term access to extract stones was treated as acquisition of a capital asset.

Lease money paid under long-term quarry contracts for an exclusive right to win stones from specified land was capital expenditure, not revenue outlay, because it secured a source of supply of enduring benefit. The Court treated the arrangement as acquisition of part of the land and a capital asset, rather than a mere purchase of raw materials as stock-in-trade. The periodic mode of payment did not change the substance of the transaction, and the amount was not rent or royalty in substance. The expenditure was therefore not deductible in computing business income.

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Issues: Whether the lease money paid for quarrying rights constituted capital expenditure or revenue expenditure and was therefore deductible in computing business income.

Analysis: The payments were made under long-term quarry contracts conferring an exclusive and enduring right to win stones from specified villages. The Court distinguished arrangements where a trader merely acquires raw materials as stock-in-trade from cases where the expenditure secures a source or asset of lasting advantage. It held that the contract conveyed a part of the land and a right to extract stones from it over a substantial period, so the stones in situ were not merely raw material already acquired but formed a capital source from which stock-in-trade would later be obtained. The periodic form of payment did not alter the character of the outlay, and the expenditure was not treated as rent or royalty in substance but as the price of acquiring a capital asset.

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

Ratio Decidendi: Where an expenditure secures an exclusive, long-term right to win minerals or stones from land and thereby acquires a source of supply of enduring benefit, the payment is capital expenditure even if made periodically by instalments.

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