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Issues Involved:
1. Whether the money paid as lease money for acquiring salt-bearing lands is a capital expenditure or a revenue expenditure. 2. Whether such expenditure is deductible under Section 10 (2)(ix) of the Income Tax Act, 1922. Detailed Analysis: 1. Nature of Lease Money: Capital or Revenue Expenditure The primary issue in this case was whether the money paid by the assessee for acquiring salt-bearing lands on short-term leases should be classified as capital expenditure or revenue expenditure. The assessee, a manufacturer of saltpetre and common salt, acquired salt-bearing land on short-term leases to extract crude saltpetre, which was then processed into potassium nitrate and sodium chloride. The Income Tax Officer initially disallowed the deduction of this lease money, treating it as capital expenditure. This decision was upheld by the Assistant Commissioner and the Income Tax Commissioner, who argued that the payment was made to obtain the exclusive privilege of carrying on operations in a particular area, thus constituting an initial payment necessary to start the business. The court examined whether the payment for these leases represented the cost of raw material or rent. It was determined that the leases did not bring into existence a fixed capital asset but were instead an outlay from circulating capital. The court noted that the leases were short-term, ranging from one to two years, and the land acquired was wholly and completely used up in the process of manufacturing crude saltpetre. 2. Deductibility Under Section 10 (2)(ix) of the Income Tax Act, 1922 The second issue was whether the expenditure on these leases could be deducted under Section 10 (2)(ix) of the Income Tax Act, 1922, which allowed for the deduction of any expenditure not being in the nature of capital expenditure incurred solely for earning profits. The court emphasized that the expenditure was incurred solely for the purpose of earning profits and was necessary for the running of the business, not for acquiring it. The court referred to various precedents, including English cases and Indian cases, to determine the nature of the expenditure. It was concluded that the expenditure was a running expenditure necessary for the business's operation and did not bring into existence an asset or an advantage for the enduring benefit of the trade. Thus, it was held to be a revenue expenditure. Conclusion The court concluded that the money expended on the leases should not be regarded as capital expenditure in the circumstances of this case. The expenditure was deemed a revenue expenditure, deductible under Section 10 (2)(ix) of the Income Tax Act, 1922. The decision was based on the nature of the business, the short-term nature of the leases, and the fact that the expenditure was necessary for the running of the business rather than acquiring it. The judgment emphasized that the assessee's business involved acquiring multiple short-term leases, which were exhausted in the course of a year or so, and the expenditure was part of the circulating capital necessary for the manufacturing process.
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