Revenue expenditure on leased premises panels used to maintain a presentable business environment was held not to be capital outlay.

Expenditure incurred on fitting thin plywood wooden panels in leased cinema premises to conceal cracks, improve appearance and keep the business area presentable was held to be revenue expenditure. Because the premises were taken on a short lease, the panels were removable on termination and had negligible scrap value, the work did not create a durable asset or an enduring advantage. The spending was treated as maintenance of the trade premises for business use, not capital outlay. The referred question was answered in the negative and in favour of the assessee.

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Issues: Whether the expenditure incurred for fixing wooden panels in the lounge, staircase and restaurant of a leased cinema building was capital expenditure or revenue expenditure.

Analysis: The expenditure was incurred to conceal cracks and ugly patches, improve the appearance of the cinema premises and keep the business place presentable for customers. The premises were held on a short lease, the panels were thin plywood affixed to the walls, and on termination of the lease they were removable and of negligible scrap value. The facts did not show the creation of a durable asset or an advantage of an enduring nature; rather, the expenditure was laid out to facilitate the carrying on of the business and maintain the premises in a fit condition for trade.

Conclusion: The expenditure was revenue expenditure and not capital expenditure, and the answer to the referred question was in the negative, in favour of the assessee.

Ratio Decidendi: Expenditure incurred for the business use of leased premises, which does not bring into existence a durable asset or enduring advantage and is directed to maintaining the premises in a presentable condition for trading purposes, is revenue expenditure.

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