Law:

Section:

Business expenditure-Expenditure for acquiring exclusive privilege.-Dealer in conch shells-Annual amount paid to Govern ment for exclusive right to fish and collect conch shells in certain area-Whether capital expenditure or revenue expenditure- Difference between expenditure for acquiring enduring asset and for acquiring stock-in-trade-Income-tax Act (XI of 1922), S. 10(2) (xv).   The assessee firm which carried on business in the purchase and sale of conch (chank) shells took on lease from the Govern ment "the exclusive rights, liberty and authority to fish for and take and carry away all chank shells" in the sea off the coast line of a certain area specified in the lease, for a period of three years from July 1, 1944, to June 30, 1947, on a consideration of a yearly rent of Rs. 6,111. The assessee claimed that, in comput ing its annual income from the sale of chanks it was entitled to deduct the yearly rent of Rs. 6,111 paid to the Government, as business expenditure under section 10 (2) (xv) of the Income-tax Act, 1922 but the Department held that it was capital expenditure. A Full Bench of the High Court of Madras held that the expendi ture was not of a capital nature and the assessee was entitled to deduct the amount claimed as business expenditure : On appeal to the Supreme Court   Held, (Per Kapur and Hidayatullah, JJ.-S. K. Das J. dissenting) that the amount of Rs. 6,111 paid by the assessee was an amount paid to obtain an enduring asset in the shape of an exclusive right to fish; the payment was not related to the chanks, which it might or might not bring to the surface; it was not an amount spent in acquiring its stock-in-trade but for acquiring an asset from which it may collect its stock-in-trade. It was therefore an expenditure of a capital nature, and though it was incurred for the purposes of the assessee's business, it was not allowable under section 10 (2) (xv).   Per S. K. Das, J.-The contract entered into by the assessee was wholly and exclusively for the purpose of obtaining conch shells, which were its stock-in-trade. The contract granted no interest in the sea, sea bed, or sea water etc. but it was simply a…