Law:

Section:

(I) Section 37(1), read with section 256 of the Income-tax Act, 1961 - Business expenditure - Allowability of - Whether question as to whether expenditure for direct feeder line of power not owned by assessee company was capital expenditure, was a question of law - Held, yes (II) Section 43(1), read with section 256 of the Income-tax Act, 1961 - Actual cost - Tribunal held that inauguration expenses were not to be capatialised as forming cost of plant and machinery - Whether no referable question of law arose from Tribunal's order - Held, yes (III) Section 37(1), read with section 256 of the Income-tax Act, 1961 - Business expenditure - Allowability of - Whether question as to whether inauguration expenses were of revenue nature deductible from assessee's income, was a question of law - Held, yes FACTS (i)The Tribunal held that the expenditure for the direct feeder line of power not owned by the assessee-company was a capital expenditure. On application under section 256(2): (ii)The Tribunal held that the inauguration expenses were not to be capitalised as forming the cost of the plant and machinery. On application under section 256(2): (iii)The reference was made for determining whether inauguration expenses of were of revenue nature deductible from the income of the assessee-company HELD (i)In view of the decision in CIT v. Excel Industries Ltd. [1980] 122 ITR 995, the question as to whether the expenditure for the direct feeder line of power not owned by the assessee company was capital expenditure, was a question of law. (ii)The inauguration expenses cannot be included in the capital expenses. Therefore, the Tribunal was legally correct in holding that inauguration expenses were not to be capitalised as forming the cost of plant and machinery. No question of law arose therefrom. (iii)The question as to whether inauguration expenses were of revenue nature, was a question of law. Note: The decision is partly in favour of the assessee and partly in favour of the revenue. CASE REFERRED TO CIT v. Excel Industries Ltd. [1980] 122 ITR 995 (Bom.) Vikram Gulati for the Applicant. JUDGMENT B.P. Jeevan Reddy, C.J -By this…

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