Capital expenditure on cancellation of long-term lease obligation denied as business deduction under income-tax law.

A lump-sum paid to cancel a proposed long-term lease was treated as capital expenditure because it was made to extinguish an onerous obligation connected with an enduring lease arrangement, not as a recurring business outlay incurred in earning profits. The governing distinction is between revenue expenditure in the course of operations and expenditure that acquires, preserves, or releases the assessee from a capital or enduring liability. On that basis, the payment was held outside the deduction for expenditure laid out wholly and exclusively for business, and the question was answered against the assessee.

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Issues: Whether the sum of Rs. 1,70,000 paid to cancel the long-term lease arrangement was an admissible revenue deduction under section 10(2)(xv) of the Indian Income-tax Act, 1922.

Analysis: The payment was made to get rid of an obligation arising from a proposed 30-year lease and not in the course of carrying on the business as a recurring operational expense. The governing test distinguishes expenditure incurred in the process of earning profits from expenditure incurred to acquire, preserve, or extinguish a capital asset or an enduring advantage. On the authorities considered, a lump-sum paid to free the assessee from a permanent or onerous liability connected with a lease of enduring character is capital in nature and falls outside the residuary deduction for expenditure laid out wholly and exclusively for business.

Conclusion: The payment was capital expenditure and not an admissible revenue deduction; the question was answered against the assessee.

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