Law: Income Tax Act, 1961

Section: 37(1)

Section 37(1) of the Income-tax Act, 1961 - Business expenditure - Allowability of - Assessment year 1976-77 - Assessee-firm carried on business of exhibiting films in leased premises and incurred certain expenditure for renovation and repair of cinema hall - It also incurred expenditure on account of stamp duty, interest, etc. - Whether, since expenditure incurred would enable assessee to generate more revenue by inviting greater flow of customers to cinema hall without bringing into existence any new asset or an advantage of enduring nature expenditure incurred was revenue expenditure - Held, yes FACTS The assessee, a registered firm, carried on the business of exhibiting films. The premises in which the business was carried on belonged to a HUF and was taken by the assessee on lease. The assessee incurred certain expenditure for renovation and repair of the cinema hall and claimed it as revenue expenditure. It also claimed for expenditure incurred on account of stamp duty, interest, etc. The Assessing Officer disallowed the assessee's claim holding that the aforesaid expenditure was capital in nature as it brought into existence an advantage of enduring nature. The Commissioner (Appeals) allowed the claim of the assessee. The Tribunal found that the assessee had demolished the flooring, staircase railings and replaced them with new tiles. Similarly the old wooden staircase had been removed and replaced by concrete staircase and that screen had been replaced and cement plastering had been done. On these findings, the Tribunal held that the expenditure. Similarly was connected with the repairs of the existing accommodation and, therefore, said expenditure did not bring into existence any asset or advantage of enduring nature and, concluded that expenditure in question was revenue expenditure. On reference: HELD Applying the tests formulated by the Apex Court in Empire Jute Co. Ltd. v. CIT [1980] 124 ITR 1 and the Gujarat High Court in CIT v. Mehta Transport Co. [1986] 160 ITR 35 , to the facts found by the Tribunal, it was apparent that the assessee had merely incurred expenditure in rented premises to facilitate its trading operations in a more efficient…

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