Law:

Section:

Section 37(1) of the Income-tax Act, 1961 (Corresponding to section 10(2)(xv) of the Indian Income-tax Act, 1922) - Business expenditure - Allowability of - Assessment year 1959-60 - One of collieries owned by assessee firm was requisitioned to military use - Production of it was suspended temporarily - As soon as property was de-requisitioned, assessee incurred certain expenditure to resume production on renovation of buildings, plant and machinery and removal of accumulated debris on said land - Whether colliery could be regarded as an asset of continuing business and, therefore, expenditure incurred by assessee was an allowable business expenditure incurred as part of process of profit earning - Held, yes FACTS The assessee firm owned several collieries and one of the collieries was in occupation of military. During the period of military occupation the assessee incurred expenditure on account of minimum royalty payable in respect of the colliery, the surface rent and salaries for the watch and ward employees. The expenditure was allowed in income-tax proceedings as a business expenditure. After the colliery was released by the military, the assessee incurred a further expenditure on the colliery with a view to resuming mining operations. The assessee claimed deduction of it as business expenditure which was disallowed by the ITO. On appeal, the AAC affirmed that the expenditure was in the nature of capital expenditure. On second appeal, the Tribunal confirmed the order of the AAC. On reference, the High Court held that on the facts admitted and found it could not be said that any fresh asset had been acquired by the assessee by spending the amount. The expenditure was incurred by the assessee for the purpose of carrying on an existing concern and not for acquiring any concern not in existence. Accordingly, it held that the expenditure was in the nature of revenue expenditure. On appeal to the Supreme Court: HELD In the instant case the expenditure incurred was involved in renovating the buildings, reconditioning the machinery and clearing the debris from the land. All the work done was for the purpose of resuming the operation of the colliery. The…

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