Commercial expediency and enduring benefit test determine whether road development payments are revenue expenditure.

Expenditure incurred for commercial expediency to facilitate the efficient running of a business is revenue expenditure if it does not bring into existence an asset or enduring advantage for the assessee. A contribution to a road development fund made to improve roads used for transporting sugarcane to the assessee's factories was held to be deductible because the roads remained Government property, no capital asset was acquired, and the payment was made to support the day-to-day conduct of the sugar business. The analysis confirms that a business outlay is capital only where it creates an enduring asset or benefit for the assessee.

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Issues: Whether the assessee's contribution to the road development fund for improving roads used to transport sugarcane to its factories was capital expenditure or revenue expenditure deductible in computing business income.

Analysis: Expenditure incurred in the course of carrying on a business is capital only if it brings into existence an asset or advantage of an enduring nature for the business. Where the outlay is made for running the business efficiently and profitably, and no enduring asset or benefit accrues to the assessee, it is revenue expenditure. The roads remained Government property, the assessee did not acquire them, and the payment was made to facilitate transport of raw material and the day-to-day conduct of the sugar business. The expenditure was thus dictated by commercial expediency and was not for bringing into existence an enduring capital asset for the assessee.

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

Ratio Decidendi: A payment made for commercial expediency to facilitate the efficient running of a business, without bringing into existence an asset or enduring advantage for the assessee, is revenue expenditure and is deductible.

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