1994 (11) TMI 63 - HC - Income Tax

Assessee's Inauguration Expenditure Deemed Business Expense; Petition Dismissed

The court upheld the Tribunal's decision, affirming that the expenditure incurred by the assessee for the inauguration of its new unit was a revenue ... Expenditure Incurred, Revenue Expenditure, Wholly And Exclusively Issues Involved:The judgment involves determining the deductibility of expenditure incurred in connection with the inauguration of a new unit under section 37(1) of the Income-tax Act, 1961.Deduction of Expenditure for Inauguration:The assessee, a public limited company, claimed deduction of Rs. 2,38,689 as business expenditure under the head of 'advertisement' for the assessment year 1982-83 related to the inauguration of its new unit. The assessing authority initially rejected the claim, citing the amount as inordinately high. However, the Commissioner of Income-tax (Appeals) and the Income-tax Appellate Tribunal allowed the deduction, emphasizing that the expenditure was incurred in connection with the business and was therefore allowable.Capital vs. Revenue Expenditure:The Revenue contended that the expenditure on the inaugural function should be treated as capital expenditure and not allowable under section 37(1). They argued that the facts of the case differed from previous decisions. The court disagreed, stating that the expenditure, being related to the expansion of the existing business, did not qualify as capital expenditure. Citing precedents, the court highlighted that expenditure for extending the business, like opening new branches, is revenue expenditure.Wholly and Exclusively for Business Purpose:The court examined whether the expenditure for the inaugural function was wholly and exclusively for the business purpose, a requirement for claiming under section 37(1). Various tests from legal precedents were referenced, emphasizing that if the expenditure was incurred for commercial expediency and to facilitate business indirectly, it could be considered wholly and exclusively for business purposes.Precedents and Business Expenditure:The judgment referenced various legal precedents where expenditure incurred for events like inaugurations was considered allowable as business expenditure. The court highlighted that such expenses, including those for publicity and advertisement, could be claimed as revenue expenditure if they were integral to the profit-earning process and not for acquiring permanent assets.Conclusion:The court upheld the Tribunal's decision, affirming that the expenditure incurred by the assessee for the inauguration of its new unit was a revenue expenditure allowable as business expenditure. As no question of law arose from the Tribunal's order, the original petition was dismissed.