Law:

Section:

Section 37(1) of the Income-tax Act, 1961 - Business expenditure - Allowability of - Whether municipal taxes paid by a running concern on plot purchased by it for business purposes would be a revenue expenditure, allowable under section 37, more so when municipal tax was paid not for acquisition of new business assets but for retention of same and irrespective of fact that plot was not at present put to use for business purposes - Held, yes Facts The assessee was a running concern. In the assessment year 1977-78 it purchased a plot of land to raise building thereon for business purposes. It paid a sum of Its. 1,890 towards municipal taxes on the said plot and claimed deduction of the same under section 37. The ITO refused to allow deduction on the ground that the plot had not been utilised for business purposes and, therefore, the expenses were not of revenue nature. On second appeal, the Tribunal allowed the deduction, as claimed by the assessee. On reference s Held If a new business is set up for the first time, the expenditure in doing so would be of capital nature and deduction would not be permissible under section 37, but if by a running concern the property is purchased in the shape of a plot for setting up additional business building, even if building is not constructed, the interest paid on the loan to raise the building or the municipal taxes would be permissible deductions, as they are incurred on the new asset acquired by a running concern. Moreover, the municipal tax in the instant case was paid not for acquisition of any business assets but for retention of the same and, therefore, would be allowable as a business deduction under section 37. Thus, the Tribunal was right in allowing deduction of municipal taxes on the purchased plot before it was put to use for business purposes. Cases referred to CIT v. J.K. Industries (P.) Ltd. [1980] 125 ITR 218 (Cal.), Addl. CIT v. Southern Founders [1979] 120 ITR 37 (Kar.) and C.T. Desaiv. CIT [1979] 120 ITR 240 (Kar.). L.K. Sood for the Applicant. N.K. Sood and S.C. Nagpal for the Respondent. ORDER Mital, J. - The assessee was doing business and was a running concern. In the accounting year relevant to the…

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