Factory shifting costs treated as revenue expenditure where no new asset was created and existing business continued.

Expenditure on dismantling, transportation, crane charges, supervision and reinstallation incurred while shifting a factory from rented to owned premises was treated as revenue expenditure under section 37(1). The decisive test was whether the outlay was in the capital field, not merely the duration of the benefit; since no new asset was created, the capital base remained unchanged, and the move only enabled continuation of the existing business, the claim was allowable. The note also treats the issue as one of timing of deduction rather than creation of a new profit-making apparatus, supporting deduction in the year claimed.

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Issues: Whether the expenditure incurred on shifting the factory from rented premises to owned premises was capital expenditure or revenue expenditure allowable under section 37(1) of the Income-tax Act, 1961.

Analysis: The expenditure was incurred for dismantling, transportation, crane charges, supervision and reinstallation of existing machinery and assets while relocating the same line of business. The Court distinguished cases where shifting resulted in a structural improvement or a new profit-making apparatus, and held that the decisive test is not the mere duration of benefit but whether the expenditure is in the capital field. On the facts, no new asset was created, the capital base remained unchanged, and the expenditure only facilitated continuation of the existing business. The Court also noted that the dispute was essentially about timing of deduction and that, in the circumstances, allowing the claim in the year under consideration avoided a prolonged and impractical depreciation exercise.

Conclusion: The expenditure on shifting the factory was held to be revenue in nature and allowable as a deduction; the assessee succeeded on the substantive ground.

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