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DATE: June 2, 2016 (Date of pronouncement)
DATE: June 28, 2016 (Date of publication)
AY: 2005-06
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CITATION:
S. 30/ 37(1): Expenditure on repairs of rented premises, even if huge and accumulated, are allowable as revenue expenditure. Fact that CIT(A) admitted additional evidence is no justification for seeking a set aside to the AO if the CIT(A) called for a remand report from the AO: Savarana Spinning mills Limited 293 ITR 201 (SC) distinguished

The contention of the revenue that Hon’ble Supreme Court has held in CIT vs. M/s. Saravana Spinning Mills Pvt. Ltd. 293 ITR 201 pleading that the most of the expenditure are not in the nature of current repair expenditure but accumulated repairs so even though the expenditure is revenue in nature, same is not allowable. We find that the reliance on this decision by the revenue is misplaced as in that case, Hon’ble Supreme Court was concerned about the modernisation and replacement expenses on the textile mill and it was held that it was not allowable. In the present case, the issue is not of repairs on plant and machinery but related to expenditure on building, further the building is also not owned by the assessee but is a rented premises. The expenditure would be dealt with by the provision of section 30. On reading of the above section, the accumulated repairs are not allowed when the assessee owns building and therefore as a tenant cost of repairs to the premises is allowable whether they are accumulated or current

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DATE: May 25, 2016 (Date of pronouncement)
DATE: May 30, 2016 (Date of publication)
AY: 2006-07
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CITATION:
S. 37(1): (i) Product Trial expenses of a new product is revenue in nature as it does not provide the assessee with any enduring benefit, (ii) Compensation paid to supplier to ensure goodwill and continued relationship is revenue expenditure

For allowing / disallowing any expenditure under Section 37 of the Act, the basic thing to be seen as to whether the expenditure was incurred for furtherance of business interest of the Assessee or not. It is a fact that in this case because of the expenditure incurred no new assets came into existence. The expenditure was incurred considering the old relation with the supplier and to avoid future business complications. If an assessee makes payment which is compensatory nature, it has to be allowed. In this case, the payment was made in pursuance of an agreement and that was of compensatory nature i.e.it was not penal, hence it was to be allowed

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DATE: March 18, 2016 (Date of pronouncement)
DATE: March 30, 2016 (Date of publication)
AY: 1997-98
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S. 37(1): Distinction between "application software" and "system software" explained. Expenditure on "application software" is revenue as it allows efficient carrying on of business and requires to be constantly updated due to rapid advancements in technology and increasing complexity of the features

The concept of enduring benefit must respond to the changing economic realities of the business. The expenses incurred by installation of software packages in the present computer world, which revolves on the modern communication technology, enables the assessee to carry on its business operations effectively, efficiently, smoothly and profitably. However, such software itself does not work on a standalone basis. It has to be fitted to a computer system to work. Such software enhances the efficiency of the operation. It is an aid in the manufacturing process rather than the tool itself. Therefore, the payment for such application software, though there is an enduring benefit, does not result in acquisition of any capital asset and it merely enhances the productivity or efficiency and hence, has to be treated as revenue expenditure

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DATE: February 11, 2016 (Date of pronouncement)
DATE: February 22, 2016 (Date of publication)
AY: -
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CITATION:
S. 37(1): Expenditure in respect of a project which did not materialize has to be treated as revenue expenditure as not capital asset comes into existence

On the question was to whether if the project does not materialize and an asset is not created, expenditure on steps in that direction must be treated as capital expenditure or revenue expenditure, the Supreme Court in Commissioner of Income Tax vs. Madras Auto Service (P) Ltd., reported at (1998) 233 ITR 468 clinches the controversy. There while considering the issue, the Court finds that the assessee could not have claimed it as capital expenditure, as there was no capital asset generated by spending said amount. The expenditure has been held rightly classified as revenue expenditure

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DATE: August 11, 2015 (Date of pronouncement)
DATE: August 22, 2015 (Date of publication)
AY: 1990-91
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CITATION:
S. 37(1): Law on when expenditure towards property can be termed as being for protection of the property or for curing a defect and whether that is capital or revenue explained

This payment made by the Appellant in its nature is different from a payment made to protect the property. In fact, Supreme Court in the case of Assam Bengal Cement Co. Ltd. v/s. CIT 27 ITR 34 while laying down the criteria to decide/ determine whether the payment is of capital or revenue nature has observed that the aim and object of the expenditure would determine the character of the payment. In the present facts, as pointed out above, the entire aim and object of the payment was not only that the certainty of acquisition is aborted but enduring benefit as pointed out above is obtained by the Appellant. This would conclusively determine that the payment in this case was capital in nature in the capital field

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DATE: July 3, 2015 (Date of pronouncement)
DATE: July 15, 2015 (Date of publication)
AY: 2008-09, 2009-10, 2010-11
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S. 37(1): The very nature of a license agreement is that it is not of a permanent nature. The fact that the payment is spread over a period of 10 yearst does not make the assessee the owner of the technical knowhow. The payment is not of an enduring nature

Although the payment is spread over a period of 10 years, it does not make the Assessee the owner of the technical knowhow. The very nature of the license agreement is that it is not of a permanent nature. The benefit to the Assessee as a result of payment of royalty for technical knowhow was not of an enduring nature, and therefore cannot be construed to be a capital expenditure

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DATE: March 23, 2015 (Date of pronouncement)
DATE: March 26, 2015 (Date of publication)
AY: -
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CITATION:
S. 37(1): Expenditure on an aborted capital project is revenue in nature & can be claimed as deduction in year of abandoning the project

Expenditure made for construction/acquisition of new facility subsequently abandoned at the work-in-progress stage is allowable as incurred wholly or exclusively for the purpose of assessee’s business. It is revenue expenditure as it does not result in the acquisition of an asset or an advantage of an enduring nature

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DATE: February 4, 2015 (Date of pronouncement)
DATE: February 9, 2015 (Date of publication)
AY: 2009-10
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CITATION:
Expenditure towards repair and renovation of leased premises is capital in nature. Method for allocation of common expenses to different WIP projects of a builder explained

The assessee being a builder and developer, Accounting Standard 7 (AS-7), issued by the ICAI, titled, ‘Construction Contracts’, would not apply, so that the prescription of AS-9 and AS-2, based on general principles that govern any business, would apply for the revenue recognition and inventory valuation respectively. Only costs incurred toward a particular project, or otherwise related to construction activity, would stand to be allocated and, thus, capitalized as a part of the project cost

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DATE: December 2, 2014 (Date of pronouncement)
DATE: December 5, 2014 (Date of publication)
AY: 2007-08
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CITATION:
Premium paid to buyback shares of recalcitrant shareholders is to facilitate smooth running of business and is allowable as revenue business expenditure

From the case-laws referred to in the said commentary, it is amply clear that while accepting the compromise or settlement between the two warring groups, for a proceeding under ss. 397 and 398 of the Companies Act, 1956, the Court …

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