Law:

Section:

Section 37(1) of the Income-tax Act, 1961 - Business expenditure - Allowability of - Assessment year 1992-93 - Assessee-company had three sugar manufacturing units - During relevant assessment year, it set up two new sugar factories and claimed deduction of expenses incurred by way of salary, wages, bonus, workmen's welfare expenses, manufacturing expenses, rent for office building, etc., for purpose of running of said two units - Whether since aforesaid expenses were incurred for purpose of manufacture of sugar in respective factories with a view to earn profit assessee was entitled to deduction of said expenses as revenue expenditure - Held, yes FACTS The assessee-company had three sugar manufacturing units. During the relevant assessment year of set up two new sugar factories and claimed deduction of revenue expenses relating to expansion of said units. The Assessing Officer held that the assessee could not claim the expenses incurred on the installation of new factories as revenue expenditure. Accordingly, the same were treated as capital expenditures. On appeal, the Commissioner (Appeals), by taking note of the nature of expenses involved, viz., cane development expenses, travelling expenses, interest charges, administrative expenses, lease rents, etc., which were all in the nature of revenue expenses and also noticing the decisions in various cases holding that such expenses incurred in setting up of a new units did not amount to starting of a new business but only expansion or extension of the business which was being carried on by the assessee, held that the expenses claimed by the assessee were deductible as revenue expenses. The Tribunal upheld the order of the Commissioner (Appeals). On the revenue's appeal : HELD In view of various decisions, the test for identifying an expenditure as to whether it is a revenue expenditure or a capital expenditure can be stated as under :- (1)If the amount spent was for the purpose of bringing into existence a new asset or obtaining a new advantage, it would be a capital expenditure. (2)If on the other hand, it is not made for the purpose of bringing into existence any such asset or advantage but for running the…

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