Enduring benefit test applied to road development contribution; construction of new roads was treated as capital expenditure.

Expenditure incurred for constructing new roads to improve transport facilities was held to be capital in nature, because the enduring benefit test showed that the payment brought into existence a capital asset or advantage of a capital character. The fact that the land did not belong to the assessee did not change the character of the outlay. Since the contribution was not merely for repair or routine operational convenience, it was not wholly deductible as revenue expenditure under section 10(2)(xv). The disallowance was therefore upheld against the assessee.

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Issues: Whether the assessee's contribution to a road development fund for constructing roads to improve transport facilities was revenue expenditure allowable under section 10(2)(xv), or capital expenditure.

Analysis: The allowance under section 10(2)(xv) required the expenditure to be wholly and exclusively for business and not capital in nature. Applying the enduring benefit test, the decisive question was whether the payment brought into existence an asset or advantage of a capital character. The contribution was made not merely to repair an existing road for operational convenience, but to construct new roads for improved transport facilities. Even though the land did not belong to the assessee, the expenditure resulted in the creation of a capital asset.

Conclusion: The contribution was capital expenditure and was not deductible under section 10(2)(xv).

Final Conclusion: The reference was answered against the assessee, and the disallowance of the claim was upheld.

Ratio Decidendi: Expenditure incurred for constructing roads that bring into existence a capital asset, and thereby secure an enduring advantage to the business, is capital expenditure rather than revenue expenditure.

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