Law: Income Tax Act, 1961

Section: 37

Income-tax---Business expenditure---Capital or revenue expenditure---General principles---Company engaged in manufacture and sale of its products---Sole distributor appointed for a specific region---Agreement to take over sale--¬Compensation paid by assessee---No new advantage acquired by assessee--¬Amount paid on the ground of commercial expediency to remove restrictions on right to operate in specified region---Amount deductible as, business expenditure---Indian Income Tax Act, 1961, S.37. For an expenditure to be an allowable deduction under section 37 of the Income Tax Act, 1961, it is necessary that the same is laid out or expended wholly and exclusively for the purpose of the business or profession and is not in the nature of a capital expenditure. The Act does not define the expression "capital expenditure". If the expenditure is made for acquiring or bringing into existence an asset or advantage for the enduring benefit of the business it is properly attributable to capital and is of the nature of capital expenditure. It, on the other hand, it is made, not for the purpose of bringing into existence any such asset or advantage but for running the business or working it with a view to produce the profits it is a revenue expenditure. If any such asset or advantage for the enduring benefit of the business is, thus, acquired or brought into existence it would be immaterial whether the source of the payment was the capital or the income of the concern or whether the payment was made once and for all or was made periodically. The aim and object of the expenditure would determine the character of the expenditure. The source of the manner of the payment would then be of no consequence. It is only in those cases where this test is of no avail that one may go to the test of fixed or circulating capital and consider whether the expenditure incurred was part of the fixed capital of the business or part of its circulating capital. If it was part of the fixed capital of .he business it would be of the nature of capital expenditure and if it was part of its circulating capital it would be of the nature of revenue expenditure. These tests are, thus, mutually exclusive…

Deprecated: trim(): Passing null to parameter #1 ($string) of type string is deprecated in /home/digixyei/sldsystempk.com/view/master-layout/view_case.php on line 492