1996 (5) TMI 69 - HC - Income Tax

Summary

Issues involved:
The judgment involves determining whether the expenditure incurred by the assessee for obtaining a feasibility report for converting a coke plant to a cement plant constitutes capital or revenue expenditure.

Details of the Judgment:

Issue 1:
The Tribunal's finding on the sustainability of the expenditure as capital or revenue:
- The assessee, a petroleum coke manufacturing company, explored converting its plant to a cement plant based on feasibility reports.
- The Assessing Officer disallowed the deduction of Rs. 1,38,000 spent on the feasibility report, considering it unrelated to the existing business.
- The Commissioner of Income-tax (Appeals) upheld the disallowance, but the Tribunal reversed this decision.
- The Revenue contended that converting the plant to a cement plant constitutes establishing a new plant, making the expenditure capital in nature.
- The assessee argued that the expenditure aimed at improving the existing plant without significant modifications.
- The court referenced a similar case where expenditure for improving existing operations was considered revenue expenditure.
- The court concluded that the expenditure for obtaining the feasibility report was a revenue expenditure, not capital.

Issue 2:
Justification of allowing the claim of deduction as revenue expenditure:
- The assessee's goal was to convert the plant to a cement plant without major disruptions.
- The feasibility report indicated the project was not viable, leading to the abandonment of the conversion plan.
- The court emphasized that the expenditure was aimed at improving the existing plant with minimal modifications.
- Citing a previous case, the court highlighted that utilizing existing resources more efficiently could be considered revenue expenditure.
- The court affirmed that the expenditure for obtaining the feasibility report was indeed a revenue expenditure.
- Both questions were answered in favor of the assessee and against the Revenue.

The judgment was delivered by D. N. BARUAH J., and N. S. SINGH. A copy of the judgment will be transmitted to the Income-tax Appellate Tribunal, and no costs were awarded in this case.