TMI Blog1982 (4) TMI 48X X X X Extracts X X X X X X X X Extracts X X X X ..... orrect in disallowing as a deductible business expenditure a sum of Rs. 15,000 being approximately equal to 1/3rd of the litigation expenses incurred by the assessee-company for contesting the Government's order terminating the managing agency of M/s. Govan Brothers (P.) Ltd. ? 3. Whether, on the facts and in the circumstances of the case, the Tribunal was legally correct in holding that the expenditure of Rs. 24,022 was a capital expenditure and, therefore, not allowable in determining the assessee's total income ? 4. Whether, on the facts and in the circumstances of the case, the Tribunal is legally correct in holding that the deduction under section 80-I of the Income-tax Act, 1961, is not admissible on Rs. 2,74,880, being income computed before allowance of reliefs under sections 80J and 80K of the above Act ? 5. Whether, on the facts and in the circumstances of the case, the Tribunal was correct in law in upholding the order of the Income-tax Officer deducting the borrowed funds amounting to Rs. 1,96,691 in computing the capital employed in the industrial undertaking for the purpose of allowing relief under section 80J of the Income-tax Act, 1961 ? " We may first take ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he efficient conduct of the assessee's business and further that the primary purpose of incurring this expenditure was to protect its right to have the managing agency agreement and for the continuance of the benefits it had been enjoying. The Tribunal, agreeing with the assessee, took the view that so far as the assessee was concerned, it believed that this expenditure had to be incurred in the best interest of its business and that the expenditure incurred was mainly for the purpose of the assessee's business. It did not bring into existence any fresh benefit of an enduring nature to the assessee. However, it could not be ignored that M/s. Govan Brothers (P.) Ltd. also had high stakes in the outcome of the litigation and normal business prudence demanded that it should have shared a fair proportion of this expenditure. On this view, therefore, the Tribunal directed that a sum of Rs. 35,000 be treated as an allowable deduction and confirmed the disallowance to the extent of the remaining amount of Rs. 15,000 only. It would appear that it has been found as a fact by the Tribunal that this expenditure had been incurred by the assessee mainly for the purpose of its business and, se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n by this court was (headnote): " It is well settled that an expenditure incurred for preservation or protection of a capital asset is revenue in nature and not a capital expenditure. The test of allowability is not what a prudent man would do in similar circumstances. Though an assessee is an imprudent businessman" yet if he incurs an expenditure voluntarily for the purpose of his own business it would be allowable as a proper deduction. The fact that it was not necessary for the assessee to bear the entire expenditure or that the expenditure also enured to the benefit of others is entirely irrelevant in determining the question whether the expenditure ought to be allowed as a deduction. " It would be seen, therefore, that the assessee was entitled to deduction of the entire amount and there was no proper justification in restricting it to the extent of two-thirds only. Now, coming to question No. 3 the brief facts are that during the relevant previous year the assessee had opened some warehouses at Gwalior, Rajpura, Faridabad, Rourkela, Hyderabad and Bangalore. The total expenditure incurred in the opening of these warehouses came to Rs. 41,070 out of which expenses to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... med deduction of the costs so incurred in the relevant assessment years. The claim was disallowed by the Revenue authorities as also by the Tribunal. On a reference, the view taken by this court was that the expenditure incurred on renovating, furnishing or remodelling of a business premises can be allowed as a deduction under s. 37 of the Act, if the expenditure is not of a capital nature. When an owner incurs expenditure on additions or alterations in a building which enhances its value, the expenditure can be of a capital nature. But if a tenant incurs an expenditure on a rented building for its renovation or alteration, he does not acquire any capital asset because the building does not belong to him. Ordinarily, such an expenditure will be of a revenue nature. To hold otherwise would amount to denying him the benefit of deduction of the expenditure at all because he will not be entitled to any depreciation allowance. It was also held that in such a case no benefit of enduring nature accrues to the assessee. Similar view has been taken by the Punjab and Haryana High Court in CIT v. Bhagat Industries Corporation Ltd. [1980] 126 ITR 645 and by the Madras High Court in CIT v. Kise ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... his Act,before making any deduction under this Chapter or under s.280-0. In other words, for determination of gross total income, deductions allowable under this chapter, that is, Chap. VI-A, are not to be taken into consideration. The ITO computed the deduction under this provision at the rate of 8 percent. on Rs. 1,76,248. This income was arrived at after allowing deductions under s. 80J and s. 80K, which was evidently erroneous. On appeal, the AAC took the gross total income for the purposes of this provision at Rs. 2,74,553 and this was the figure before the allowance of development rebate. That was also not correct because the development rebate ought to be deducted in order to arrive at the gross total income for the purposes of this provision. The Tribunal, disagreeing with the AAC, set aside his order on this point and restored that of the ITO. It did take the definition of gross total income into consideration, but unfortunately omitted to consider that deductions under Chap. VI-A are not to be taken into consideration while computing the gross total income for the purpose of giving relief under s. 80K(1). It would appear, therefore, that the view taken by the Revenue auth ..... X X X X Extracts X X X X X X X X Extracts X X X X
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