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Section 37(1) of the Income-tax Act, 1961 [Corresponding to section 10(2)(xv) of Indian Income-tax Act, 1922] - Business expenditure - Allowability of - Assessment year 1953-54 - High Court disallowed deduction of additional payments which in addition to royalty on ground that additional payments like royalty was capital in nature; and, alternatively, additional amounts were paid to company entered into agreement for collection of forest products for six years and paid royalties to erstwhile maharaja - Just prior to expiry of agreement they agreed to pay additional amount on condition that agreement would be extended - Agreement was extended obtain a benefit of an enduring nature i.e., for extension of agreement - Whether under agreement company had made an arrangement for obtaining what was its stock-in-trade and money spent for acquiring stock-in-trade of business was revenue expenditure - Held, yes - Whether payment of premium in form of additional payment in consideration of owner of property agreeing to grant a right to take and remove stock-in-trade was in nature of capital expenditure - Held, yes FACTS Under agreement with the Maharaja. The appellant-company was permitted to collect "sleepers and scantlings" from logs of sal trees from his Estate for six years. In consideration of it, the company agreed to pay as royalty specified percentages of the price at which the "sleepers and scantling" were supplied by the company to the Indian railways. Just prior to expiry of the agreement the company offered to pay enhanced royalty for last two years in consideration of the Estate granting renewal of the agreements on condition that agreement was further extended. Subsequently fresh agreements were executed for some more years which also provided for payment of royalty at specified rates. A covenant about the additional payments offered to be made by the company was, however, not incorporated in the agreement. For the assessment year 1953-54, the assessee's claim for deduction, in addition to royalty, of additional amounts under section 10(2)(xv), was rejected by the ITO. On appeal, the AAC allowed the claim holding that the same were 'additional royalty'. The…

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