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Issues involved: Interpretation of expenditure as capital or revenue in nature for income-tax assessment u/s 256(2) of the Act.
Judgment Summary: The High Court of Delhi addressed a reference made by the Commissioner of Income-tax regarding the assessment year 1960-61. The dispute arose from the assessee's claim of Rs. 32,431 spent on remodelling furniture in retail depots as a deductible expense. While the ITO and AAC considered the expenditure capital in nature, the Tribunal disagreed, deeming it necessary due to design changes in the ordinary course of business. The Tribunal, following a court directive, posed the question of whether the expenditure on remodelling furniture was allowable as a repair expense. The court noted a previous application u/s 256(2) for a different assessment year, where the Tribunal declined to state a case due to no dispute on the business purpose of the expenditure, leading to the court's rejection of the application. In the current assessment year, the court found no evidence suggesting the expenditure was not for business purposes. The ITO's classification of the expenditure as capital indirectly acknowledged its business nature. The Tribunal differentiated between capital and revenue expenses related to furniture, shops, and fans, concluding that the remodelling expenditure was revenue in nature, necessitated by design changes, and not capital. Citing a relevant Supreme Court decision, the court held the Rs. 32,431 as deductible revenue expenditure, supporting the Tribunal's decision. Therefore, the court answered the reference in favor of the assessee, affirming the deductibility of the remodelling expenditure as revenue expenditure.
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