1980 (7) TMI 77 - HC - Income Tax

Summary

Issues Involved:
1. Whether the Tribunal was justified in disallowing the claim of the assessee for deduction of cable laying charges as revenue expenditure.
2. Whether the Tribunal was justified in its computation method for allowance of expenditure u/s 37(2) considering depreciation.

Summary:

Issue 1: Deduction of Cable Laying Charges as Revenue Expenditure

The assessee, a limited company engaged in manufacturing Vitamin "C" and other chemicals, claimed a deduction of Rs. 58,062 for cable laying charges paid to the Gujarat Electricity Board. The Income Tax Officer (ITO) disallowed this claim, and the Appellate Assistant Commissioner (AAC) upheld the decision. The Tribunal also rejected the assessee's contention that the expenditure was for commercial expediency and not of a capital nature. The Tribunal's decision was based on the fact that the service lines belonged to the Gujarat Electricity Board and not to the assessee or its associate concerns.

The High Court referred to the Supreme Court's decision in *Empire Jute Co. Ltd. v. CIT [1980] 124 ITR 1*, which established that payments made to augment the productivity of the profit-making structure are revenue expenditures. The Court also cited similar judgments from the Allahabad High Court (*CIT v. Kanodia Cold Storage [1975] 100 ITR 155*), the Delhi High Court (*Hindustan Times Ltd. v. CIT [1980] 122 ITR 977*), and the Bombay High Court (*CIT v. Excel Industries Ltd. [1980] 122 ITR 995*), which supported the view that such expenditures are revenue in nature.

The High Court concluded that the expenditure of Rs. 58,062 was indeed revenue expenditure incurred for augmenting the profitability of the assessee's profit-making structure. Therefore, the Tribunal's decision was overturned, and the question was answered in favor of the assessee.

Issue 2: Computation Method for Allowance of Expenditure u/s 37(2)

Mr. Patel, representing the assessee, did not press this question. Consequently, the High Court did not address this issue and disposed of it as not pressed.

Conclusion:

The High Court answered the first question in the negative, favoring the assessee and against the revenue, while the second question was not addressed as it was not pressed. There was no order as to costs.