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Issues involved: Determination of whether the expenditure of Rs. 13,254 on account of unsuccessful tube-well expenses was a capital or revenue expenditure.
Summary: The High Court of Allahabad was presented with a question regarding the nature of an expense claimed by a cooperative society engaged in the business of manufacturing and selling crystal sugar. The society had incurred expenses for boring a tube-well which turned out to be unsuccessful. The Income Tax Officer disallowed the claim, considering it not wholly and exclusively for the business. The Appellate Authority also rejected the claim, deeming it of a capital nature. However, the Tribunal ruled in favor of the society, stating that the expenditure was incurred to facilitate the business better. The distinction between capital and revenue expenditure was discussed, citing various legal precedents. The court referred to cases such as Atherton v. British Insulated and Helsby Cables, Ltd., Pyrah v. Annis & Co. Ltd., and A. V. Thomas and Co. Ltd. v. CIT to analyze the nature of the expenditure. It was emphasized that expenses incurred with a view to acquire a capital asset, regardless of the outcome, should be considered capital expenditure. The court also considered cases like CIT v. Royal Calcutta Turf Club and Atlas Cycle Industries Ltd. v. CIT, where expenses directly related to the business were allowed as deductions. However, in the present case, the court concluded that the expenditure on the unsuccessful tube-well was capital in nature, as it was incurred with the intention of acquiring a capital asset. Therefore, the court held that the expenditure of Rs. 13,254 was a capital expenditure. In conclusion, the court answered the question by stating that the expenses on the unsuccessful tube-well were indeed capital in nature, and each party was directed to bear their own costs.
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