Revenue expenditure and MAT book profit: business-improvement costs and dividend-stripping loss were both treated under their true statutory character.

Payments made to implement profit-improvement measures were revenue expenditure because they improved existing business efficiency without creating a new capital asset, new business unit, or new technical know-how; book treatment as capital did not alter the true character of the outlay, so the disallowance failed. Loss from dividend stripping could not be ignored in computing book profit under section 115JB because MAT is a self-contained code and the restriction in section 94(7) for normal-tax computation could not be imported into the book-profit calculation. The Tribunal's view on these substantive issues was upheld.

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Issues: (i) whether the payment made to Meconcy & Company for implementing profit-improvement measures was revenue expenditure, and (ii) whether the loss arising from dividend stripping could be ignored while computing book profit under section 115JB of the Income-tax Act, 1961.

Issue (i): whether the payment made to Meconcy & Company for implementing profit-improvement measures was revenue expenditure.

Analysis: The payment was incurred for improving the existing business efficiency and profitability. No new capital asset was acquired, no new business unit was set up, and no technical know-how for a new project was brought into existence. Mere treatment in the books as capital expenditure did not decide the true character of the outlay.

Conclusion: The expenditure was revenue in nature and the disallowance was not sustainable.

Issue (ii): whether the loss arising from dividend stripping could be ignored while computing book profit under section 115JB of the Income-tax Act, 1961.

Analysis: Section 115JB operates as a self-contained code for computation of book profit. The restriction in section 94(7), which concerns computation of income chargeable to tax under the normal provisions, could not be imported into the MAT computation. The provision for book profit had to be worked out strictly in terms of section 115JB and its Explanation.

Conclusion: The loss arising from dividend stripping could not be ignored for section 115JB computation on the basis of section 94(7).

Final Conclusion: The court upheld the Tribunal on the substantive issues addressed and confined further consideration only to the questions separately admitted in part.

Ratio Decidendi: Book profit under section 115JB must be computed as a self-contained code, and the character of expenditure is determined by its real nature rather than its book treatment.

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