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Issues Involved:
1. Whether the compensation paid under section 68G of the Motor Vehicles Act for permits with an unexpired period of two years or less is revenue expenditure and the balance is capital expenditure. 2. Whether the expenditure incurred in shifting one of the three workshops to new premises is of a capital nature. Issue-wise Detailed Analysis: Issue 1: Compensation under Section 68G of the Motor Vehicles Act The primary issue concerns whether compensation paid by the Karnataka State Road Transport Corporation (the Corporation) under section 68G of the Motor Vehicles Act for permits with an unexpired period of two years or less should be treated as revenue expenditure, and the balance as capital expenditure. The Corporation argued that the compensation paid to private permit holders, whose permits were canceled under the nationalization scheme, should be deductible as business expenditure under section 37 of the Income-tax Act, 1961. The Appellate Assistant Commissioner partially accepted this argument, stating that compensation for permits with an unexpired period of two years or less is revenue expenditure, while compensation for permits with an unexpired period of more than two years is capital expenditure. The Tribunal, however, disagreed with the Appellate Assistant Commissioner and held that the compensation paid, irrespective of the duration of the unexpired period of the permits, is capital expenditure. The Tribunal reasoned that the payment was made to eliminate competition and secure a monopoly, which is an enduring benefit for the Corporation. The High Court upheld the Tribunal's decision, stating that the compensation paid is an integral part of the nationalization scheme and is aimed at securing a monopoly in the road transport business, which is an enduring benefit. Therefore, the compensation paid is capital expenditure and not deductible under section 37 of the Income-tax Act, 1961. Issue 2: Expenditure on Shifting Workshop The second issue is whether the expenditure of Rs. 80,000 incurred by the Corporation in shifting one of its regional workshops to new premises should be treated as capital expenditure. The Corporation contended that the expenditure did not bring any enduring advantage and was merely a book adjustment as the shifting was done departmentally. The Appellate Assistant Commissioner accepted this argument, stating that since only part of the plant and machinery was shifted and not the entire setup, the expenditure is of a revenue nature and should be allowed as a deduction. The Tribunal, however, disagreed and held that the expenditure is capital in nature, relying on the Supreme Court's decision in Sitalpur Sugar Works Ltd. v. Commissioner of Income-tax. The High Court concurred with the Tribunal, stating that the expenditure was incurred to set up the concern with a greater advantage, which is a capital expenditure. The Court cited the principle that expenditure incurred for the enduring benefit of the business is capital expenditure. Conclusion: The High Court concluded that: 1. The compensation amount paid by the Corporation under section 68G of the Motor Vehicles Act to private operators, irrespective of the duration of the unexpired period of their permits, is capital expenditure and not deductible under section 37 of the Income-tax Act, 1961. 2. The expenditure of Rs. 80,000 incurred in shifting the regional workshop is capital expenditure and not deductible as business expenditure. The department is entitled to its costs, with an advocate's fee of Rs. 250 for one set.
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