Law:

Section:

Section 37(1) of the Income-tax Act, 1961 - Business expenditure - Allowability of - Whether if expenditure incurred for preparation of feasibility report of a new project, is in respect of same business which is already carried on by assessee, even if it is for expansion of business, namely, to start a new unit which is same as earlier business, and there is unity of control and a common fund, then such expenditure is to be treated as revenue expenditure - Held, yes FACTS The assessee-company, which was already involved in the business of running cinemas, was pursuing owners of a cinema hall for taking over the cinema for conversion into a multiplex and operation and management thereof. In order to carry out technical and financial feasibility, the assessee availed services of an architect and paid him certain amount as fee in the preceding year. However, the project was not found to be financially and technically viable. The assessee, therefore, decided to drop the project and amount spent was claimed as revenue expenditure. Similarly, there was another proposal before the assessee to take over one single screen cinema for the purpose of conversion into a four-screen cinema complex. Detailed technical feasibility was carried out and building plans were prepared with the help of engineers and architects, who were paid remuneration. On subsequent market research, the assessee preferred to retain single-screen cinema and proposal of conversion of the said cinema into a multiplex was shelved. That expenditure was also claimed as revenue expenditure by the assessee. The revenue authorities held such expenditure to be capital expenditure on the ground that expenses were incurred for creating new assets. On appeal, the Tribunal held that the expenses on new project development were allowable as business expenditure under section 37. On the revenue's appeal to the High Court : HELD A harmonious reading of Triveni Engg. Works Ltd. v. CIT [1998] 232 ITR 639/100 Taxman 19 (Delhi) and CIT v.Modi Industries [1993] 200 ITR 341/68 Taxman 114 (Delhi) would demonstrate that one has to keep in mind the essential purpose for which such an expenditure is incurred. If the…

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