1975 (4) TMI 19 - HC - Income Tax

Summary

Issues: The judgment involves a reference u/s 256(1) of the Income-tax Act, 1961 regarding the allowability of expenditure incurred by a partnership firm on alterations and improvements in a rented shop for assessment years 1964-65, 1965-66, and 1966-67.

Assessment of Expenditure Claimed as Deduction:
The assessee claimed expenditure on alterations and improvements in the rented shop as deduction under section 30(a)(i) and section 37 of the Income-tax Act, 1961. The Income-tax Officer disallowed the claim, which led to appeals and subsequent proceedings. The Tribunal ultimately held that the expenditure was not allowable as it was of a capital nature, not falling under current repairs.

Interpretation of Sections 30 and 37:
Section 30 of the Act allows for deductions related to rent, taxes, and repairs for premises used for business purposes. The distinction between "repairs" and "current repairs" is crucial, with the former encompassing accumulated repairs over years. Section 37 allows for deductions of revenue expenditures not of a capital nature, with the enduring benefit being a key factor in determining the nature of the expenditure.

Nature of Expenditure and Capital vs. Revenue Expenditure:
The judgment delves into the distinction between capital and revenue expenditure, emphasizing that expenditure on alterations in a rented building by a tenant is generally of a revenue nature. The enduring benefit must endure in the way fixed capital does to be considered capital expenditure.

Precedent and Application to the Case:
Drawing on a relevant case, the judgment concludes that the expenditure incurred on structural changes in the shop did not create a capital asset or enduring benefit for the assessee. The expenditure was deemed to be of a revenue nature, eligible for deduction u/s 37 of the Act.

Conclusion:
The Tribunal's decision to disallow the claimed sums as expenditure not falling under section 30(a)(i) but under section 37 of the Act was upheld. The assessee was granted costs amounting to Rs. 200.