Income or Capital Expenditure

Timber business-Agreement for exploitation of forest areas by removal of timber and making area fit for cultivation-Consideration paid in instalments-Purchase of entire land later-Consideration paid for agreement-Whether capital expenditure. In the course of his timber business the assessee entered into an agreement on October 5, 1950, with a company for exploitation of certain undeveloped forest and regular plantation areas belonging to the company. Under the terms of the agreement, the assessee was to cut the timber and to make the area fit for plantation. The consideration for the agreement was Rs. 1,20,000 of which Rs. 25,000 was paid before the date of the agreement and the balance was payable in four annual instalments. On August 31, 1951, the assessee purchased the property outright for a further consideration of Rs. 30,000, and mortgaged it to the company for the payment of the instalments due. Until September 30, 1951, the assessee did not do any exploitation himself. Thereafter, on October 1, 1951, he entered into another agreement with another company for exploitation of the entire area for a kuttikanam. The question was whether the sum of Rs. 1,20,000 represented capital or revenue expenditure: