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Issues involved: Determination of whether expenses incurred in shifting the headquarters of a company from one location to another constitute capital expenditure or revenue expenditure.
Summary: The case involved a reference under section 256(1) of the Income-tax Act, 1961 regarding the assessment year 1972-73 for a private limited company. The company incurred expenses, including legal fees, in shifting its head office from Jamshedpur to Calcutta. The Income-tax Officer initially deemed the expenditure as capital in nature, but the Appellate Assistant Commissioner ruled in favor of the assessee, allowing the deduction. The Department appealed to the Income-tax Appellate Tribunal, which upheld the deduction based on relevant case law. The matter was then referred to the High Court for opinion on whether the expenses were capital or revenue in nature. In analyzing the case, the High Court referred to the Supreme Court decision in Sitalpur Sugar Works Ltd. v. CIT [1963] 49 ITR 160 (SC), which established that expenditure resulting in enduring advantages is considered capital in nature. The reasons for shifting the company's office to Calcutta were found to provide enduring advantages, similar to the situation in the Supreme Court case. The Court emphasized that the enduring nature of the advantages derived from the shifting justified categorizing the expenses as capital expenditure. The Court rejected the argument that since the factory remained in Jamshedpur, the principles of the Supreme Court case did not apply. It clarified that the enduring advantages resulting from the shift, regardless of the factory's location, warranted treating the expenses as capital in nature. Additionally, the Court distinguished between expenses of enduring nature and those of recurring nature, affirming that the advantages from the shifting were enduring and not merely incidental to the factory's business. Ultimately, the Court held that the Tribunal erred in allowing the deduction of legal expenses as revenue expenditure, concluding in favor of the Department. The expenses incurred in shifting the headquarters were deemed capital in nature. No costs were awarded in the matter.
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