1990 (5) TMI 99 - AT - Income Tax

Summary

Issues Involved:
1. Classification of the cost of the book 'World Chlor Alkali Outlook 1980-1990' as capital or revenue expenditure.
2. Applicability of Section 37 of the Income-tax Act, 1961.
3. Interpretation of "plant" under Section 43(3) of the Income-tax Act, 1961.

Issue-wise Detailed Analysis:

1. Classification of the cost of the book as capital or revenue expenditure:

The assessee, a private limited company engaged in consultancy for Chlor Alkali Industries, purchased the book 'World Chlor Alkali Outlook 1980-1990' for Rs. 56,771. The Income-tax Officer denied the deduction claim, classifying it as capital expenditure, which was upheld by the Commissioner of Income-tax (Appeals). The Commissioner (Appeals) reasoned that the book was a "storehouse of information" and a "plant" in the assessee's business, thus capitalizing its cost and allowing depreciation at the general rate applicable to plant and machinery. The assessee contested this, arguing that the expenditure facilitated trading operations and should be considered revenue expenditure, citing the Supreme Court decision in Alembic Chemical Works Co. Ltd v. CIT.

2. Applicability of Section 37 of the Income-tax Act, 1961:

The Tribunal examined whether the cost of the book could be deducted under Section 37, which allows deductions for expenses "wholly and exclusively for the purpose of business or profession," provided they are not capital expenditures. The Tribunal noted that the assessee had established a leading consultancy firm before purchasing the book, which was intended to acquire know-how technology in consultancy. The Tribunal highlighted that the expenditure should not be capital in nature to qualify for deduction under Section 37.

3. Interpretation of "plant" under Section 43(3) of the Income-tax Act, 1961:

The Commissioner (Appeals) classified the book as "plant" under Section 43(3), which includes books. However, the Tribunal emphasized that not all books qualify as "plant." The Tribunal referred to the Supreme Court's observations in Gotan Lime Syndicate v. CIT and British Insulated & Helsby Cables Ltd. v. Atherton, which discussed the enduring benefit test for capital expenditure. The Tribunal concluded that the book's utility would not last more than a few years due to technological advancements, and thus, the expenditure was not capital in nature.

Conclusion:

The Tribunal held that the cost of the book 'World Chlor Alkali Outlook 1980-1990' is a revenue expenditure, allowable as a deduction under Section 37 of the Income-tax Act, 1961. The Tribunal found that the book was necessary for the assessee's consultancy business and did not provide an enduring benefit warranting capital classification. Consequently, the Tribunal set aside the Commissioner of Income-tax (Appeals)'s decision and directed the Income-tax Officer to allow the deduction of Rs. 56,771 as revenue expenditure. The appeal filed by the assessee was allowed.