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Issues: Whether the compensation attributable to the unexpired route permits, paid as part of the acquisition of the transport undertaking, was revenue expenditure deductible in computing business income, or capital expenditure forming part of the cost of a capital asset and eligible only for depreciation.
Analysis: The compensation for the unexpired permits was not paid directly to acquire a separate permit from the erstwhile operators. The permits stood transferred by operation of law along with the stage carriages, and the payment formed part of the overall consideration for acquisition of the undertaking. The amount could not be treated as prepaid expenditure or goodwill. Since a stage carriage has no commercial utility without a valid permit, the permit value was inseparable from the value of the stage carriages and had to be treated as part of the capital asset. The assessee was therefore entitled only to depreciation on the combined value, and the income had to be recomputed after allowing admissible depreciation.
Conclusion: The amount attributable to unexpired route permits was held to be capital expenditure forming part of the cost of the stage carriages, not revenue expenditure, but depreciation was allowable on that value.
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