Law:

Section:

Section 37(1)of the Income-tax Act, 1961 - Business expenditure - Allowability of - Assessment year 1996-97 - Assessee replaced old mono sound system of its theatre with new dolby stereo system and treated it as a revenue expenditure - Assessing Officer, however, treated same as capital expenditure - Whether since instead of repairing existing old stereo system, assessee had installed dolby stereo system and same had not benefited assessee in any way with regard to its total income as there was no change in seating capacity of theatre or increase in tariff rate of ticket, expenditure incurred by assessee would be treated as revenue expenditure - Held, yes FACTS The assessee, during the relevant assessment year, replaced the old mono-sound system of its theatre with new dolby stereo system and treated it as a revenue expenditure. The Assessing Officer, however, treated the same as a capital expenditure. On appeal, the Commissioner (Appeals) upheld the order of the Assessing Officer. On second appeal, the Tribunal, considering the fact that the assessee instead of repairing old sound system, had installed dolby system, held that such change of stereo system would amount to revenue expenditure and not a capital expenditure. On revenue's appeal : HELD Admittedly, the old sound system was in existence for several years and due to use of the very sound system for several years, the old system was worn out. If the assessee had provided certain amenities to its customers by replacing the old system with a better sound system and by introducing such system if it had not increased its income in any way, such change of sound system could not be considered as capital in nature. Instead of repairing the existing old stereo system, the assessee had installed dolby stereo system. That had not benefited the assessee in any way with regard to its total income since there was no change in the seating capacity of the theatre or increase in the tariff rate of the ticket. [Para 7] Therefore, the Tribunal was justified in treating the expenditure incurred by the assessee for replacing the sound system as a revenue expenditure. [Para 8] CASES REFERRED TO CIT v. Saravana Spinning…

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