9911796707
|
Home
Issues:
1. Whether the expenditure on the installation of an electrical stand-by line is a permissible deduction under section 37(1) of the IT Act, 1961. 2. Whether the expenditure incurred on the stand-by line is of a capital or revenue nature. Analysis: Issue 1: The first ground of appeal was that the ld. CIT(A) erred in allowing the expenditure of Rs. 62,417 as a deduction under section 37(1) of the IT Act, 1961. The assessee had spent this amount on installing a stand-by line obtained from the Gujarat Electricity Board. The ITO initially treated this expenditure as capital in nature. Issue 2: The second ground of appeal was that the ld. CIT(A) should have upheld the ITO's decision of treating the expenditure as capital. The revenue relied on the decision in Travancore Cochin Chemicals Ltd. vs. CIT where the Supreme Court held that expenditure on acquiring an enduring advantage for business is of a capital nature. However, the assessee cited the decision in Empire Jute Co. Ltd. vs. CIT, where it was stated that if an advantage facilitates trading operations or enhances business efficiency without affecting fixed capital, the expenditure is revenue in nature. In this case, the agreement with the Gujarat Electricity Board revealed that the supply period was for a minimum of seven years, which was not of enduring or long-term nature. The Tribunal concluded that the purpose of the installation was not enduring, even if the test of "expenditure of enduring nature" was applied. Therefore, the expenditure incurred was deemed to be of revenue nature. The appeal was rejected based on this analysis.
|
