INCOME TAX ACT, 1961

Section 37(1)

Business expenditure - Expenditure on design charges for T3 Airport construction - Revenue or capital expenditure -

During the year, assessee paid a sum on account of design charges for T3 Airport construction. AO treated the amount as capital in nature whereas the assessee claimed it under the revenue expenditure. Amount was paid by the assessee to an entity for availing the services of structural design and drawings.Held: There may be cases where expenditure though referable to or in connection with fixed capital was nevertheless allowable as revenue expenditure, e.g. expenditure incurred in preserving or maintaining capital assets. This test is, therefore, clearly not one of universal application. It was true that if disbursement was made for acquisition of a source of profit or income, it would ordinarily be in the nature of capital expenditure. There was no enlargement of the permanent structure of which the income would be the produce or fruit. If the outgoing expenditure is so related to the carrying on or the conduct of the business that it may be regarded as an internal part of the profit- earning process and not for acquisition of an asset or a right of a permanent character. The possession of which is a condition of the carrying on of the business, the expenditure may be regarded as revenue expenditure. Thus, deduction was to be allowed to assessee.

Relied:Empire Jute Company Ltd. v. CIT (1980) 124 ITR 1 (SC) : 1980 TaxPub(DT) 1083 (SC) and Commr. of Taxes v. Nchanga Consolidated Copper Mines Ltd. (1965) 58 ITR 241 (PC) : 1965 TaxPub(DT) 58 (Privy Council)(PC). D128041

REFERRED :

FAVOUR : In assessee's favour.

A.Y. : 2010 -11

INCOME TAX ACT, 1961

Section 50C

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