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Issues: Determination of whether the expenditure of Rs. 38,000 was revenue or capital in nature.
Summary: The High Court of Madhya Pradesh was tasked with providing an opinion on the question of law referred by the Income-tax Appellate Tribunal regarding the allowance of a claim of Rs. 38,000 as revenue expenditure for a private limited company's assessment year 1976-77. The Income-tax Officer disallowed the claim, considering it capital in nature due to the acquisition of tenancy rights. The Tribunal, however, allowed the claim, leading to the reference to the High Court. The contention put forth by the counsel for the assessee was that the expenditure was for asset preservation and hence revenue in nature, while the Revenue's counsel argued that it was capital expenditure for acquiring enduring possession rights. The court, following the principle laid down by the Supreme Court, emphasized that the crucial aspect is whether the payment was made for an enduring asset. Since the expenditure was for acquiring possession rights, it was deemed capital in nature. Citing a similar decision by the Calcutta High Court, the court held that the expenditure was indeed capital in nature, disagreeing with the Tribunal's decision to treat it as revenue expenditure. Consequently, the court answered the question in the negative, favoring the Revenue, and directed the parties to bear their own costs in the reference.
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