1994 (11) TMI 27 - HC - Income Tax

High Court rules re-roofing expense as revenue, not capital. Upholds Tribunal decision. No costs awarded.

The High Court of Madras determined that the expenditure of Rs. 4,19,000 for re-roofing the spinning department by a public limited company should be ... Revenue Expenditure Issues involved: Determination of whether the expenditure incurred for re-roofing the spinning department is a revenue expenditure or a capital expenditure.Summary:The High Court of Madras was tasked with deciding whether the expenditure of Rs. 4,19,000 for re-roofing the spinning department by a public limited company should be treated as a revenue or capital expenditure. The Income-tax Officer initially deemed it capital in nature, but the Appellate Assistant Commissioner and the Appellate Tribunal both held that it should be allowed as a revenue expenditure.The Department argued that the replacement of the roof with steel frames and asbestos sheets constituted a capital expenditure as it brought a new asset into existence with enduring benefits. Conversely, the assessee contended that since only the roof was replaced while the structure remained intact, the expenditure should be considered revenue in nature.Various legal precedents were cited to support both arguments, highlighting the difficulty in definitively categorizing expenditure as capital or revenue. Ultimately, the Court analyzed the specific facts of the case and concluded that the replacement of the roof was for repair and modernization purposes, not for creating a new asset with enduring benefits. Therefore, the Court upheld the Tribunal's decision that the expenditure was of revenue nature.In conclusion, the Court ruled in favor of the assessee, affirming that the amount spent on replacing the roof should be treated as a revenue expenditure. No costs were awarded, and a counsel fee of Rs. 1,000 was specified.