Capital expenditure on acquiring bus routes was not deductible where compensation secured a capital advantage and excluded private competition.

Compensation paid to ex-operators for taking over bus routes was treated as capital expenditure because it was incurred to acquire the unexpired permits and secure the routes free from private competition. The decisive test was the character of the advantage obtained: where the payment secures a business advantage in the nature of a capital asset, it is capital in nature rather than part of the ordinary running of the business. The fact that the payment was made in recurring instalments did not alter its true character. It was therefore not allowable as a revenue deduction in computing business income.

---

---

Issues: Whether compensation paid to ex-operators for taking over their bus routes was capital expenditure or revenue expenditure deductible in computing business income.

Analysis: The payment was made to acquire the unexpired permits and thereby secure the routes free from competition from private operators. The decisive test is the character of the advantage obtained: where expenditure is incurred to obtain a business advantage in the nature of a capital asset, and not merely in the running of the business, it is capital in nature. The recurring or instalment character of the payment does not alter its true character when the asset or advantage acquired is capital.

Conclusion: The compensation was expenditure of capital nature and was not allowable as a revenue deduction.

---