Law:

Section:

Section 37(1) of the Income-tax Act, 1961 - Business expenditure - Allowability of - Whether expenditure incurred by assessee in dismantling and shifting factory from one place to another would be capital expenditure - Held, yes FACTS Owing to incessant labour trouble, the assessee shifted its factory to other safer place. In this process the assessee incurred certain expenditure and claimed same as allowable revenue expenditure. The ITO disallowed the amount holding that the amount represented capital expenditure. On appeal, the Tribunal held that out of said expenditure, the expenditure incurred for transporting raw materials and stores from old factory to new factory site and the insurance premium paid in connection with the transit of consumable stores, machinery spares, finished products, raw material and processed stock etc. must be allowed as revenue expenditure. Regarding the balance of expenses, the Tribunal held that it represented charges for dismantling the old factory and transporting the plant and machinery to the new site and that, said part of the outgoing represented only capital expenditure. On reference : HELD There can be no doubt that where plant and machinery are erected for the first time, any expenditure incurred in respect thereof is decidedly capital in nature, since it is for the acquisition of fixed assets which form the very source from out of which income earning transactions are to be operated upon. The same will be the position where the assessee incurs expenditure for purchasing outright an existing factory for the purpose of running it himself. The outlay on purchase of fixed capital equipment would also be capital expenditure. Again, in a case where there is a substantial expansion of the fixed capital equipment by way of addition to an existing factory, the expenditure involved in putting up additional plant or machinery would again be capital expenditure. There is no difference between expenditure incurred for acquiring an additional plant, which is capital expenditure, and an expenditure incurred in dismantling and refitting the existing plant at a better site. In all these, it may be verily said that the expenditure…

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