Law:

Section:

Section 37(1) of the Income-tax Act, 1961 - Business expenditure - Allowable as - Assessment year 1988-89 - Whether expenditure incurred by assessee in converting godown taken on lease into office premises by renovating it, providing interior decoration, replacement of existing roof with that of cement sheets, replacement of floor with that of marble, etc., could be termed as revenue expenditure - Held, yes FACTS In its return of income for the assessment year 1988-89, the assessee-company claimed an expenditure of Rs. 9,20,436 for converting the godown premises into office by renovating it, providing interior decoration, replacement of existing roof with that of cement sheets, replacement of floor with that of marble, plastering of walls and construction of bath rooms and W.C., etc., as the revenue expenditure under the belief that it was towards repairs and maintenance of the premises taken on rent. However, the Assessing Officer disallowed the claim and allowed depreciation on the said amount holding the said expenditure to be of capital nature. On appeal, the Commissioner (Appeals) allowed 1/6th of the rental value as attributable towards repairs and the balance was treated as capital expenditure. On second appeal, the Tribunal deleted the addition. On appeal : HELD In computing the income chargeable under the head 'Profits and gains of business or profession', section 37 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 instant case, since the asset created by spending the said amount did not belong to the assessee but the assessee got the business advantage of using modern business premises at a low rent, thus saving considerable revenue expenditure for a considerably long period, the Tribunal was justified in coming to the conclusion that the expenditure should be…

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