1989 (2) TMI 32 - HC - Income Tax

Summary

Issues:
1. Determination of whether the expenditure incurred for installation of a new power line and equipment is allowable as revenue expenditure under section 37 of the Income-tax Act, 1961.

Analysis:
The case involved the question of whether an expenditure of Rs. 45,149 by the assessee for installing a new power line and equipment could be considered as revenue expenditure under section 37 of the Income-tax Act, 1961. The assessee, engaged in manufacturing and selling tea, previously generated energy privately at a cost of 0.95 paise per unit. Subsequently, electricity lines were laid from the Assam Trunk Road to the factory unit, with the assessee paying Rs. 45,149 to the Assam Electricity Board. The Income-tax Officer initially treated the expenditure as capital expenditure, emphasizing the enduring benefit derived. However, the Appellate Tribunal viewed the expenditure as facilitating energy supply for the factory unit and allowed the appeal. The case was referred to the court to determine the nature of the expenditure.

The court referred to various precedents, including the case of CIT v. British India Corporation Ltd., emphasizing that no universal test could be applied to distinguish between capital and revenue expenditure. The enduring benefit test was discussed, highlighting that if an advantage merely facilitated trading operations or enhanced business efficiency without affecting fixed capital, it could be considered revenue expenditure. The court acknowledged the lack of a universal test due to conflicting authorities, citing cases like Lakshmiji Sugar Mills Co. P. Ltd. v. CIT and Travancore-Cochin Chemicals Ltd. v. CIT.

In analyzing the specific case, the court noted that the expenditure of Rs. 45,149 was aimed at running the factory efficiently by laying electricity lines, without impacting the fixed capital. Considering the purpose of the investment and its impact on business operations, the court concluded that the expenditure was of revenue nature. Therefore, the court ruled in favor of the assessee, holding that the expenditure was allowable as revenue expenditure under section 37 of the Income-tax Act, 1961. The judgment was delivered in favor of the assessee, with no costs imposed.