1994 (2) TMI 48 - HC - Income Tax

Summary

Issues:
1. Whether the expenditure incurred on fitting gear boxes to a steamer should be treated as capital or revenue expenditure.

Analysis:
The Revenue filed an application under section 256(2) of the Income-tax Act, 1961, seeking a reference to the High Court by the Income-tax Appellate Tribunal regarding the treatment of an expenditure of Rs. 2,96,682 for fitting gear boxes to a steamer as revenue or capital expenditure. The Income-tax Officer initially treated the expenditure as capital, but the Commissioner of Income-tax (Appeals) and the Income-tax Appellate Tribunal considered it as revenue expenditure. The Tribunal held that the fitting of gear boxes was to make the steamer more efficient and increase income, not resulting in an enduring benefit to the assessee, aligning with the decision in Empire Jute Co. Ltd. v. CIT [1980] 124 ITR 1. The Revenue sought a reference to challenge this decision, but the High Court found that the expenditure was for the better conduct and improvement of the existing business, following the precedent set by Alembic Chemical Works Co. Ltd. v. CIT [1989] 177 ITR 377. As the expenditure enhanced efficiency and profitability without conferring an enduring benefit, it was deemed as revenue expenditure, and no referable question of law arose.

In conclusion, the High Court dismissed the Revenue's petition under section 256(2) of the Income-tax Act, upholding the decision that the expenditure incurred on fitting gear boxes to the steamer was revenue expenditure. The Court found that the expenditure was for the improvement and better conduct of the existing business, aligning with the recent Supreme Court decision in Alembic Chemical Works Co. Ltd. v. CIT [1989] 177 ITR 377. Since the expenditure resulted in increased efficiency and income without conferring an enduring benefit, it was rightfully treated as revenue expenditure, and no legal question arose out of the Tribunal's order for reference to the High Court.