1986 (1) TMI 143 - AT - Income Tax

Summary

Issues:
Assessment of expenditure as revenue or capital nature.

Analysis:
The appeal before the Appellate Tribunal ITAT BOMBAY-E concerned the assessment of an assessee for the assessment year 1980-81, with the Department challenging the characterization of a payment of Rs. 75,000 towards the cost of High Voltage Electrical Installation as revenue expenditure. The assessee, a member of a cooperative society, contributed to the purchase of the electrical installation. The Income Tax Officer (ITO) disallowed the claim, deeming it capital expenditure, while the CIT (A) reversed this decision, considering it revenue expenditure. The Department appealed this decision. The authorized representative of the assessee argued that since the asset was owned by the Society, the expenditure did not result in the acquisition of any asset by the assessee, making it revenue expenditure. Conversely, the departmental representative contended that the expenditure was capital in nature as the assessee acquired an interest in the asset through the Society.

The Tribunal analyzed the nature of the expenditure in light of relevant case laws. Referring to the decision of the Bombay High Court in CIT vs. Excel Industries Ltd., where a company's payment for laying an overhead service line was considered revenue expenditure as the service line remained the property of the Electricity Board, the Tribunal emphasized that no enduring benefit or advantage was acquired. Additionally, the Tribunal cited the Supreme Court's ruling in L.H. Sugar Factory and Oil Mills (P) Ltd. vs. CIT, where a contribution towards road construction was held to be revenue expenditure as it did not result in the acquisition of a capital asset or expansion of the profit-making apparatus. The Tribunal rejected the argument that the assessee, as a member of the Society, had a share in the asset, emphasizing that the society is an independent entity. It was established that the expenditure did not lead to the creation of any capital asset in the hands of the assessee, aligning with the principle that expenditure on the creation of a capital asset is on capital account only if the asset belongs to the assessee.

In conclusion, the Tribunal affirmed the CIT (A)'s decision, holding that the expenditure of Rs. 75,000 was of revenue nature and not capital. The appeal of the Department was dismissed, upholding the characterization of the expenditure as revenue expenditure.