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Issues involved: Determination of whether development charges paid to RIICO are of capital or revenue nature for the assessment year 1982-83.
Summary: The Income-tax Appellate Tribunal referred the question of law regarding the nature of development charges paid to RIICO by the assessee. The Income-tax Officer initially considered the charges as capital expenditure due to acquiring leasehold rights, but the Commissioner of Income-tax (Appeals) later allowed it as revenue expenditure. The Tribunal, following a previous decision, concluded that the development charges were capital in nature. In analyzing the case, the Tribunal referred to the principles laid down by the Full Bench of the Lahore High Court in Benarsidas Jagannath, emphasizing that capital expenditure is made for the initiation, extension, or substantial replacement in a business. The expenditure should bring an enduring benefit or asset to the trade, justifying its treatment as capital. The Supreme Court and other High Courts have also upheld similar views regarding capital expenditure. The Tribunal determined that the development charges in this case were related to a capital asset, the land allotted by RIICO, providing enduring benefit to the assessee. As the charges were for establishing a unit on the land, enhancing its workability, and not for running business operations, they were considered capital expenditure. Therefore, the Tribunal ruled in favor of the Revenue, deeming the development charges as not allowable. In conclusion, the Tribunal upheld the capital nature of the development charges paid by the assessee, answering the reference in favor of the Revenue. No costs were awarded in the matter.
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