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TMI Blog2002 (6) TMI 19X X X X Extracts X X X X X X X X Extracts X X X X ..... ecoration, which resulted in replacement of existing roof with that of cement sheets, replacement of floor with that of marble, plastering of walls and construction of bathrooms and W. C., etc. The assessee claimed the said expenditure of Rs. 9,2.0,436 as revenue expenditure and thereby refused to treat it as capital expenditure, since in his belief it was towards repairs and maintenance of the said premises taken on rent by the assessee. In response to the notice under sections 142(1) and 143(2) of the Income-tax Act, 1961 (hereinafter referred to as the "IT Act"), the assessee furnished various details. However, the Assessing Officer disallowed the claim and allowed depreciation on the said amount under section 32 of the Income-tax Act holding the said expenditure to be of capital in nature. The appeal was carried at the instance of the assessee to the Commissioner of Income-tax (Appeals), ("the CIT(A)" for short). The Commissioner of Income-tax (Appeals) by order dated October 31, 1991, allowed 1/6th of the rental value as the maximum possible amount attributable towards repairs and the balance of the amount was treated as capital expenditure. Being aggrieved, the assessee fi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment Supply P. Ltd. v. CIT [1984] 149 ITR 52 (Delhi) and Allied Metal Products v. CIT [1982] 137 ITR 689 (P&H). He prayed for rejection of the appeal with costs. Consideration: In computing the income chargeable under the head "Profits and gains of business or profession", section 37 of the Income-tax Act, enables the deduction of any expenditure laid out or expended wholly and exclusively for the purpose of the business or profession, as the case may be. The fact that an item of expenditure is wholly and exclusively laid out for the purposes of the business, by itself, is not sufficient to entitle its allowance in computing the income chargeable to tax. In addition, the expenditure should not be in the nature of a capital expenditure. In the infinite variety of situational diversities in which the concept of what is capital expenditure and what is revenue arises, it is well-nigh impossible to formulate any general rule, even in the generality of cases, sufficiently accurate and reasonably comprehensive, to draw any clear line of demarcation. However, some broad and general tests have been suggested from time to time to ascertain on which side of the line the outlay in any part ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... years and Rs. 2,000 per month for the remaining years. The lease deed further provided that the new construction shall, right from the commencement of the work, be the property of the lessors and upon completion of the work of construction the lessee would have only the right to be a tenant for a period of 39 years under the existing lease, subject to the payment of rent and observation of other terms and conditions of the lease. The lessee would not be entitled under any circumstances to any compensation whatsoever on account of its putting up the new construction in place of the old. Acting under the lease agreement, the assessee invested a sum of Rs. 1,62,835 in the previous year relevant to the assessment year 1968-69 and Rs. 50,937 during the succeeding year in constructing a new building on the said land. The assessee claimed before the Income-tax Officer the expenditure of the said sums of Rs. 1,62,835 and Rs. 50,937 in the relevant assessment years as capital loss. In the alternative, the assessee claimed deduction of the payments as business expenditure or as extra rent for the lease. Ultimately, the Income-tax Appellate Tribunal held that the expenditure of the said two a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y of contribution for the construction and development of roads between the various sugarcane-producing centres and the sugar factories of the assessee. The roads remained the property of the Government. The apex court held that the expenditure was not of capital nature and had to be allowed as an admissible deduction in computing the profits of the assessee's business. The expenditure was incurred for the purpose of facilitating the running of the assessee's motor vehicles and other means employed for transportation of sugarcane to its factories. (ii) In the case of L. H. Sugar Factory and Oil Mills (P.) Ltd. v. CIT [1980] 125 ITR 293 (SC), the assessee was carrying on the business of manufacture and sale of sugar. It had its factory in U. P. The assessee paid a contribution towards meeting the cost of construction of roads in the area around its factory under a sugarcane development scheme. The question was whether this amount was deductible in computing the assessee's profits. The apex court held that it was, because although the advantage secured was of long duration, it was not an advantage in the capital field because no tangible or intangible asset was acquired by the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X
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