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Issues involved: Application u/s 256(2) of the I.T. Act, 1961 for determining the nature of payment made to Gujarat Electricity Board as revenue or capital expenditure.
Summary: The case involved a company engaged in chemical manufacturing that set up a new unit requiring electricity from Gujarat Electricity Board. The company made a payment of Rs. 9,00,000 towards the cost of laying an overhead service line. The Income Tax Officer (ITO) considered this payment as capital expenditure due to enduring benefit, but the Appellate Authority (AAC) and Tribunal viewed it as revenue expenditure for commercial expediency. The company did not acquire any asset from the payment, and the service line remained the property of the Board. The payment was necessary for the business operations, similar to precedents where expenses incurred for business facilitation were treated as revenue expenditure. In the judgment, various legal precedents were cited to support the view that the payment made by the company was for commercial expediency and not for acquiring any enduring benefit. The case was compared to instances where expenses incurred for facilitating business operations were considered revenue expenditure. The court concluded that the payment made by the company towards the electricity supply line was in the nature of revenue expenditure, essential for the manufacturing activities at the new unit. Therefore, the Tribunal's decision in favor of the company was upheld, and the application was discharged with costs.
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