Law: Income Tax Act, 1961

Section: 37

Income-tax-Capital or revenue expenditure---Expenditure incurred on asphalting existing Kaccha roads---Allowable as revenue expenditure---Income Tax Act, 1961, S.37. The assessee, a company spent Rs.10,00,000 on asphalting the Katcha road in its factory premises. The Inspecting Assistant Commissioner held that the expenditure was capital in nature. The Tribunal confirmed the disallowance. On a reference: Held, that the expenditure was incurred for asphalting the Kaccha roads and hence, it was allowable as revenue expenditure. CIT v. Chemaux Ltd. (1994) 74 Taxman 201 (Bom.) fol. THIS JUDGMENT DELIVERED BY: SMT. RANJANA DESAI, J.---By this reference under section 256(t) of the Income Tax Act, 1961, the Income-tax Appellate Tribunal has referred the following question of law to this Court for opinion, at the instance of the assessee; "Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was right in law in holding that the expenditure incurred on asphalting the existing Kaccha road within the factory brought into existence a new asset or an advantage of an enduring nature and hence was of capital nature'?" The facts, which are relevant for the purposes of this reference, are as under: The assessee is a company. The assessment year in 1982-83 for which relevant accounting year ended on September 30, 1981. The assessee had spent an amount of Rs.10,00,000 on the repairs of the road in the factory premises. It was submitted before the Inspecting Assistant Commissioner of Income-tax, Pune, that the roads within the factory premises were katcha roads and the assessee had spent the amount of Rs:10,00,000 for converting them into tar roads. It was further submitted that even after these repairs, after every three years the repairs will have to be carried out because these roads do not last for a long time. The Inspecting Assistant Commissioner .of Income-tax held that the assessee had substantially renovated the roads and hence the expenditure can be classified as a capital expenditure. According to him, the life of these roads would be much more than what was stated by the assessee. He, therefore, held that the expenditure was a…

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