2017 (1) TMI 1495 - HC - Income Tax

Nature of expenditure - revenue or capital - Held that - As decided in CIT, Jaipur vs. Rajasthan State Mines & Minerals Ltd. 2016 (9) TMI 1394 - RAJASTHAN HIGH COURT the relevant year debited entry in the books of account for the year 1992-93, therefore, resolution is passed subsequently but since it was mercantile system for the year 1992-93, it will come into force. The contention which has been raised by Mr. Singhi is required to be accepted, it can only be one time revenue expenditure and subsequent claim of the assessee will not be acceptable and if his claim is made and accepted, it will be for the department to recover the tax from the assessee. In that view of the matter, the issue is answered in favour of the assessee and against the Department for the revenue expenses (Rs.2,96,000/-) of year 1992-93 only one time. The issue is answered in favour of the assessee and against the Department.

Summary

Issues:
Interpretation of business expenditure as capital nature

Analysis:
The appellant challenged the tribunal's decision confirming the order of the CIT(A) regarding the nature of certain expenditures. The High Court framed a substantial question of law to determine whether the expenditure was rightly considered as business expenditure or of capital nature. The court referred to a Division Bench judgment in a similar case, emphasizing that the acceptance of liability by the Corporation for the expenditure in question was crucial. The court noted that the resolution passed by the Corporation was an administrative formality for income tax purposes, as it was part of the mercantile system. The court concluded that the expenditure was a one-time revenue expenditure for the specific year, and any subsequent claims by the assessee would not be acceptable. Therefore, the issue was decided in favor of the assessee for the revenue expenses of the relevant year only.

In light of the above analysis, the High Court ruled in favor of the appellant and against the Department, dismissing the appeal. The judgment clarified the distinction between revenue and capital expenditures, highlighting the significance of the Corporation's acceptance of liability and the application of the mercantile system in determining the nature of the expenditure. The decision provided clarity on the treatment of the specific expenditure in question, emphasizing its one-time nature for the relevant year. The judgment underscored the importance of considering the specific circumstances and legal principles governing the classification of expenditures to ensure a fair and accurate determination of tax liability.