1993 (9) TMI 33 - HC - Income Tax

Deductibility of Business Expenses: Court allows deduction for electric coolers, refers specific expenditure assessment.

The High Court held that the reimbursement of advances for electric coolers was a revenue expenditure necessary for the business interest of the assessee, ... Business Expenditure, Capital Or Revenue Expenditure, Income Tax Act, Liability For Surtax Issues involved: The judgment addresses the following issues: 1. Allowability of reimbursement of advances as a deduction under the Income-tax Act, 1961. 2. Direction to allow expenditure incurred in a specific accounting year.Issue 1 - Reimbursement of Advances: The assessee claimed a deduction of Rs. 65,000 for electric cooler advances made to dealers, which the Income-tax Officer initially rejected. The Commissioner of Income-tax (Appeals) allowed the deduction, stating that ensuring retailers had coolers was in the business interest of the assessee. The Tribunal rejected the Department's contention that it was not the assessee's business to deal in electric coolers, affirming that the expenditure was allowable and should be considered if incurred for business purposes in the relevant accounting year.Issue 1 Conclusion: The High Court held that the reimbursement of advances for electric coolers was a revenue expenditure, not capital expenditure, as it was necessary for the business interest of the assessee to make such arrangements with the bank. The court affirmed that the liability incurred in ensuring retailers had coolers was in the course of the assessee's business, making it a deductible expense.Issue 2 - Expenditure Incurred in Specific Year: The Tribunal directed the Income-tax Officer to determine the part of the expenditure incurred by the assessee in the calendar year 1974 for the assessment year 1975-76. The court agreed with this approach, stating that the matter required factual investigation and should be determined by the Income-tax Officer for the relevant accounting year.Issue 2 Conclusion: The High Court upheld the Tribunal's decision to refer the matter back to the Income-tax Officer for determining the specific expenditure incurred in the relevant accounting year, thus answering question No. 2 in the affirmative.In conclusion, the High Court ruled in favor of the assessee on both issues, affirming the allowability of the reimbursement of advances as a deduction and directing the determination of specific expenditure for the relevant accounting year.