2014 (1) TMI 30 - HC - Income Tax

Court rules in favor of assessee in Income Tax Appeal over expenditure classification

The court dismissed the Income Tax Appeal, ruling in favor of the assessee, as the expenditure incurred for laying new cables for electricity supply was ... Whether amount paid for laying new cables for the supply of electricity be revenue expenditure - Held that:- Following Commissioner of Income Tax Vs. Kanodia Cold Storage [1974 (5) TMI 18 - ALLAHABAD High Court] - The object of incurring the expenditure was to get the existing power line replaced so as to enable the assessee to receive higher K. V. A. electric power - It cannot be said that by changing the line the assessee procured some enduring asset - The amount paid to the State Electricity Board, for laying additional lines, and for shifting HT lines, was of revenue nature - Decided against Revenue. Issues:Income Tax Appeal under Section 260-A of the Income Tax Act, 1961 challenging the order of the Income Tax Appellate Tribunal regarding the nature of expenditure incurred for laying new cables for electricity supply.Analysis:The appeal raised a question of law regarding whether the amount paid to the Electricity Board for laying new cables for electricity supply constituted revenue expenditure or capital expenditure. The court referred to a previous decision in Commissioner of Income Tax Vs. Kanodia Cold Storage, where it was established that expenditure incurred for replacing existing infrastructure to enhance operational efficiency does not result in the creation of a new enduring asset. The court applied the principle that replacement of worn-out parts does not create a new asset, especially when the expenditure is necessary for the efficient functioning of the existing setup. Therefore, the court concluded that the expenditure in question could not be categorized as capital expenditure.The court also cited decisions from Bombay, Delhi, and Gujarat High Courts to support its conclusion that expenditure incurred for enhancing operational efficiency without creating new enduring assets is considered revenue expenditure. The Tribunal affirmed that the amount paid to the State Electricity Board for laying additional lines and shifting HT lines was of revenue nature, aligning with the principles established in the aforementioned cases.Consequently, the court ruled in favor of the assessee, dismissing the Income Tax Appeal as the expenditure in question was deemed to be revenue in nature based on the established legal principles and precedents.