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TMI Blog1997 (1) TMI 27X X X X Extracts X X X X X X X X Extracts X X X X ..... ion of law. According to the court's direction, the Income-tax Appellate Tribunal, Patna Bench, Patna, made a statement of the case and referred the following common question of law for the opinion of this court : "Whether, on the facts and in the circumstances of the case, the Tribunal is right in law in holding that the expenditure incurred on payment of interest to partner and dealings in raw materials should be capitalised as pre-operative expenses for the purpose of allowing depreciation?" The material facts can be briefly stated as follows. At the material time, the assessee-firm was engaged in the business of manufacture and sale of Fawrah (udal). The account for the pre-operative period was closed on December 6, 1997, and a fres ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pital expenditure on which the assessee was entitled to depreciation and in that view the Income-tax Officer was not justified in disallowing the claim of the assessee to the extent of Rs. 30,000. Upholding the assessee's contention, the Tribunal held that the expenditure incurred prior to the setting up of the business cannot be allowed as revenue expenditure and the same is necessarily to be capitalised. The claim of the assessee was consequentially upheld and the Income-tax Officer was directed to capitalise the amount claimed by the assessee and to allow the consequential depreciation. In support of its view, the Tribunal relied upon the decisions in Western India Vegetable Products Ltd. v. CIT [1954] 26 ITR 151 (Bom) and Travancore-Coc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vestment at all but it was simply appropriation and allocation of available funds between the partners themselves. I am, therefore, of the view that so far as the amount of Rs. 25,206 is concerned, the Assessing Officer and the appellate authority rightly did not allow it to be added to the actual cost of the machinery for capitalisation and for claiming depreciation of the rate of 10 per cent. Similarly, I am unable to see how expenditure connected with dealings in raw materials for the period prior to the start of business can be said to be capital expenses. For the reasons stated, I answer the question in the negative, that is to say, against the assessee and in favour of the Revenue. S. N. JHA J.---I agree. - - TaxTMI - T ..... X X X X Extracts X X X X X X X X Extracts X X X X
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