Law:

Section:

Section 37(1) of the income-tax act, 1961-Capital or revenue expenditure-Assessee, a manufacturer of sugar, decided to bore a new tube-well in its factory premises to supplement water supply which was inadequate for assessee's business-however, attempt to bore tube-well proved unsuccessful-whether expenditure incurred on unsuccessful attempt to bore tube-well was a capital expenditure and not revenue expenditure-held, on facts, yes Facts The assessee-society, carrying on the business of manufacture and sale of crystal sugar, had two tube-wells in its factory, but supply of water from them for the assessee's business was inadequate Consequently, it decided to bore a new tube-well, but the attempt did not prove successful. The assessee incurred a sum of Rs. 13,254 in boring the unsuccessful tube-well and claimed the same as an expenditure incurred wholly and exclusively for the purpose of its business. The ITO disallowed the claim. On appeal, the AAC also disallowed the claim holding that the said expenditure was of a capital nature. On second appeal, the Tribunal, however, allowed the assessee's claim, holding that the expenditure was incurred to facilitate the carrying on of the assessee's business better. On reference: Held The expenses incurred for the purpose of or with a view to acquire capital asset, whether it ultimately produces capital or not, must be regarded as in the nature of capital expenditure. In the instant case, the assessee incurred the expenditure for boring a new tube-well. If the scheme had succeeded, it would have acquired a capital asset. The mere fact that the attempt failed would not change the capital nature of the expenditure. The impugned expenditure was, therefore, capital in nature. Cases referred to British Insulated & Helisby Cables Ltd. v. Atherton 10 TC 155 (HL), Anglo-Persian Oil Co. Ltd. v. Dale (Inspector of Taxes) 16 TC 253, Pyrah (Inspector of Taxes) v. Annis &Co. Ltd. [1957] 31 ITR 517(CD), East India Commercial Co. (P.) Ltd. v. CIT [1964] 54 ITR 81 (Cal.), A.K Thomas & Co. Ltd. v. CIT [1963] 48 ITR 67 (SC), CIT v. Royal Calcutta Turf Club[1961] 41 ITR 414 (SC), Atlas Cycle Industries Ltd. v. CIT [1982] 134…

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