Law: Income Tax Act, 1961

Section: 37

Income-tax---Capital or revenue expenditure---Amount paid initially for acquiring membership of- organisation entitling assessee to receive latest technical information---Membership to be renewed annually ---Assessee did not acquire asset of enduring benefit by paying initial subscription---Amount paid was deductible---Indian Income Tax Act, 1961, S.37. The question whether an expenditure is capital or revenue in nature is a vexed question, because the line of demarcation between the two is very thin. It has not been possible to lay down a single or exhaustive test as infallible or any single criterion as decisive for determination of the question. However, attempts have been made from time to time to outline some broad factors to be taken into consideration to distinguish capital from revenue expenditure. One rough and ready test, which is usually being followed, is to try to ascertain whether a particular expenditure brings about "enduring benefit" to the assessee. The assessee was a public sector undertaking and derives income for supply of technical know-how to various concerns in India and abroad. It also undertakes turn key projects in India and abroad. During the previous year, ended on March 31, 1972, and relevant to the assessment year 1972-73, the assessee paid Rs.90,000 to FRI as initial admission fee for its membership and claimed it as revenue expenditure. The said organisation is a cooperative research organisation and supplies to its members information concerning mathematical models which can be used for rational designing of vapour liquid contracting systems. While computing the total income for the relevant assessment year, the Income-tax Officer disallowed the said claim and treated it as capital expenditure. The Tribunal held that the payment of membership fee by itself did not bring into existence any asset or advantage of enduring nature to the assessee and, therefore, such expenditure could not be treated as capital expenditure. On a reference: Held, that by making payment of the initial fee, the assessee had just acquired the membership of FRI and became eligible to receive from them information regarding mathematical models for its…

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