Loom hours acquisition treated as capital expenditure because it formed part of the profit-making structure.

Payment for additional loom hours was treated as capital expenditure because the acquisition expanded the assessee's profit-making apparatus rather than meeting day-to-day trading outgoings. The Calcutta HC analysis relied on the commercial character of loom hours in the trade and on the earlier Maheshwari Devi Jute Mills principle that such hours formed part of the mills' capital structure. Short duration of the benefit did not change the nature of the asset acquired. The amount was therefore not deductible as revenue expenditure under the Indian Income-tax Act, 1922.

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Issues: Whether the amount spent on purchasing loom hours from other mills was capital expenditure or revenue expenditure deductible under the Indian Income-tax Act, 1922.

Analysis: The expenditure was incurred to obtain additional loom hours enabling the assessee to work its existing looms for longer periods under the working time agreement. The decisive consideration was the nature of loom hours as understood in the trade and as settled by the Supreme Court in the earlier Maheshwari Devi Jute Mills decision. On that basis, loom hours were treated as part of the mills' capital structure and profit-making apparatus, not as circulating capital or a mere operating incident of trade. The fact that the benefit was short-lived did not alter the character of the asset acquired. The payment was therefore regarded as the price of acquiring part of the capital structure rather than as an outgoing for the day-to-day working of the business.

Conclusion: The expenditure was held to be capital in nature and not deductible as revenue expenditure; the answer was against the assessee and in favour of the Revenue.

Final Conclusion: The reference was answered on the footing that the amount paid for loom hours represented acquisition of a capital asset forming part of the profit-making structure, and not a revenue outgoing for the operation of the existing business.

Ratio Decidendi: An expenditure incurred to acquire a transferable commercial advantage that forms part of the assessee's profit-making apparatus is capital expenditure, even if the immediate benefit is short-lived.

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