1979 (1) TMI 64 - HC - Income Tax

High Court decision allows deduction for expenses incurred in opening new branches under Indian Income Tax Act

The High Court upheld the Tribunal's decision, allowing the expenses incurred by a public limited company in relation to opening new branches as ... Assessee Carrying On Business, Enduring Nature, Expenditure Incurred, Revenue Expenditure Issues involved: Interpretation of whether certain expenses are allowable deductions as being of a revenue nature u/s 66(2) of the Indian I.T. Act, 1922.Summary:The case involved a public limited company engaged in trading motor cars and running service stations for the assessment year 1963-64. The company opened two branches, one at Worli and the other at Dadar, with different lease durations. The company incurred expenses for legal fees and brokerage related to securing premises on lease. The Income Tax Officer (ITO) disallowed the expenses as being of a capital nature due to the enduring benefit secured by the company through the leases. The company appealed to the Appellate Tribunal, arguing that the expenditure was of a revenue nature as no enduring asset was created. The Tribunal agreed with the company, stating that the expenditure was justified as it was incurred in connection with opening new branches and did not result in the creation of an enduring asset. The Tribunal allowed the expenses as deductions.The Commissioner sought a reference to the High Court under s. 66(1), but the Tribunal initially declined, citing a previous Supreme Court decision. However, upon the Commissioner's application u/s 66(2), the High Court required the Tribunal to submit the case for reference. The High Court found the facts similar to a previous case and upheld the Tribunal's decision, stating that the expenses were rightly considered of a revenue nature and allowed as deductions. The judgment favored the assessee, and each party was directed to bear their own costs of the reference.