Road-construction contribution for sugarcane transport treated as capital expenditure, not deductible as business expense.

Contributions made to construct roads for transporting sugarcane were treated as capital expenditure because they secured an enduring business advantage by improving access to the factory and the assessee's overall earning capacity. The payment was not part of the ordinary profit-earning process, and no deduction was allowable under section 10(1) or section 10(2)(xv) of the Income-tax Act, 1922. The principle applied was that outlay yielding an enduring benefit, even without acquisition of a tangible asset, is capital in nature and cannot be deducted as business expenditure.

---

---

Issues: Whether the assessee's contribution towards the construction of roads for facilitating transport of sugarcane was allowable as a revenue deduction under section 10(1) or section 10(2)(xv) of the Income-tax Act, 1922, or whether it was capital expenditure.

Analysis: The payment was made to secure a better and enduring advantage for the business as a whole by facilitating transport of sugarcane to the factory. An outlay that brings into existence an advantage of enduring benefit, even if no tangible asset is acquired or owned by the assessee, is capital in nature. The expenditure was not part of the ordinary profit-earning process but was incurred to improve the business's earning capacity. Accordingly, the earlier view that such contribution created capital expenditure was affirmed, and the principle that capital outlay cannot be deducted as business expenditure under section 10(1) was also applied.

Conclusion: The expenditure was held to be capital expenditure and not an allowable deduction under section 10(1) or section 10(2)(xv); the question was answered in favour of the Revenue.

---