2007 (3) TMI 104 - HC - Income Tax

Capital or Revenue expenditure - AO contended that the expenditure incurred by the assessee is of capital expenditure but as per assessee the expenditure are in nature of current repairs - Held that AO contention was correct and set aside the assessee appeal

Summary

Issues:
Disallowance of repair and maintenance expenses as capital expenditure.

Analysis:
The appellant filed an appeal under section 260A of the Income-tax Act against the order of the Income-tax Appellate Tribunal upholding the disallowance of Rs. 7 lakhs on account of repair and maintenance expenses by the Commissioner of income-tax (Appeals) for the assessment year 1998-99. The Assessing Officer noted that the expenses related to supply of building material and held that the expenditure incurred by the assessee resulted in enduring benefit for a long period, assessing it as capital expenditure. The Commissioner of Income-tax (Appeals) agreed with the Assessing Officer but reduced the disallowance to Rs. 7 lakhs. The Tribunal dismissed the appeal filed by the assessee, leading to the present appeal.

The main argument by the assessee was that the expenditure was incurred during the ordinary course of business and should be considered as revenue deduction, citing a decision of the apex court in a similar case. On the other hand, the Revenue argued that the expenditure resulted in long-term benefit and should be treated as capital expenditure, not as repair and maintenance expenses. The apex court's decision in a similar case highlighted the distinction between revenue and capital expenditure based on the commercial point of view and the enduring benefit obtained.

The court analyzed the facts and found that the expenditure incurred by the assessee, including constructing new counters and building a new lift shaft, resulted in acquiring new assets and was of a capital nature. The court held that the expenditure was not merely for current repairs but for fixed capital assets, distinguishing it from revenue expenditure. The court emphasized that the expenditure led to enduring benefits and savings in revenue expenditure, aligning with the principles laid down by the apex court in distinguishing between capital and revenue expenditure.

Based on the findings and the distinction between capital and revenue expenditure, the court upheld the Tribunal's decision, stating that no substantial question of law arose from the case. Consequently, the appeal filed by the assessee was dismissed, affirming the disallowance of repair and maintenance expenses as capital expenditure.