Law:

Section:

section 37(1) of the Income-tax Act, 1961 - Capital or revenue expenditure - Under two lease agreements assessee was given right to win, raise and remove stones from quarries specified in agreements for three years in consideration of certain amount to be paid in two instalments - Whether instalment paid during relevant accounting period was to be considered as capital expenditure and, therefore, was not admissible for deduction - Held, yes Facts The assessee-firm entered into two agreements, on 14-12-1971 with one committee J to quarry stones from their quarries for certain sum for a period of three years from 1-10-1971 to 30-9-1974 whereunder the former was given the right to win, raise and remove stones from quarries specified in the agreements. The agreement also permitted the assessee to enter into arrangements with third parties in regard to quarrying operations subject to written permission of J obtained in advance. Fifty per cent of the aforesaid amount agreed was paid on 3-9-1971 and the balance was to be paid in one instalment on or before 30-9-1972. During the assessment year 1973-74, the assessee paid certain amount towards lease money under the aforesaid agreements and claimed it as a deduction on the ground that it was spent to acquire raw material for its business and not to acquire any tangible asset of a permanent nature. However, the Tribunal held the impugned amount as capital expenditure and, therefore, not deductible while computing real income of the assessee. On reference: Held The criteria for determining the question of capital or revenue expenditure cannot be decided on a strait-jacket formula. No particular set of criteria can be said to be of universal application. The answer to the question as to whether a particular amount spent by the assessee for its business is in the nature of revenue expenditure or capital expenditure depends on the facts and in the circumstances of the particular case. Though the criteria like duration for which the arrangement under the contract was to prevail, whether the amount was spent once for all or it was of a recurring nature, are relevant considerations none of them by itself is conclusive in the…

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