1985 (9) TMI 42 - HC - Income Tax

Summary

Issues involved:
The judgment addresses two main issues:
1. Whether interest paid on withdrawals used for dividend payment is a revenue expenditure.
2. Whether expenses incurred for the purchase of a capital asset and study of diffuser working should be capitalized for depreciation and development rebate.

Issue 1: Interest on Withdrawals for Dividend Payment
The court referred to a previous judgment and agreed that the interest paid on withdrawals for dividend payment is indeed a revenue expenditure.

Issue 2: Expenses for Capital Asset Purchase and Diffuser Study
The case involved foreign tours undertaken by officers/directors for the purchase of a capital asset and diffuser working study. The Income-tax Officer initially disallowed the expenditure as capital in nature. The Appellate Assistant Commissioner upheld this decision, directing capitalization of the expenditure for depreciation and development rebate. The Tribunal also supported this direction, emphasizing that the tours were for the purchase of a capital asset, specifically a diffuser. As the entire expenditure was related to the purchase of the diffuser, the Tribunal upheld capitalization for depreciation and development rebate. Consequently, the answer to the second question favored the assessee.

The judgment concludes by ordering the Revenue to pay the costs of the reference to the assessee.