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Issues involved: Determination of whether expenditure incurred in the construction of railway track and siding is of a capital or revenue nature, and the admissibility of deduction for the expenditure.
Summary: The case involved a Government undertaking in the public sector engaged in refining crude oil and producing by-products. The assessee contributed Rs. 87,20,598 to the Railway Department for constructing railway track and siding outside the refinery complex. The assessee claimed this expenditure as revenue expenditure to enhance business activities. The Assessing Officer disallowed the deduction, considering it as capital expenditure due to acquiring an enduring asset. The Commissioner of Income-tax (Appeals) and the Tribunal upheld this view, leading to the reference. During the hearing, arguments were presented by counsels for both the Revenue and the assessee. The Revenue contended that the expenditure was capital in nature as it involved assets of enduring nature, while the assessee argued that it was necessary for smooth business operations. Referring to relevant case laws, the court found similarities with previous Supreme Court decisions where similar expenditures were considered revenue in nature, allowing for full deduction. The court concluded that the expenditure for railway track and siding construction was revenue expenditure, not capital. However, it was unclear if the deduction could be divided into five parts as claimed by the assessee. The court emphasized that deduction should align with the actual expenditure incurred in the relevant assessment years, leaving it to the Tribunal to determine the specifics. Ultimately, the court ruled in favor of the assessee regarding the nature of the expenditure, declining to address the remaining portion due to insufficient information.
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