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Issues: (i) Whether the expenditure incurred on replacement of old cable lines in the cinema house was capital expenditure or revenue expenditure; (ii) whether the expenditure on complimentary passes was allowable as business expenditure or was disallowable as entertainment expenditure.
Issue (i): Whether the expenditure incurred on replacement of old cable lines in the cinema house was capital expenditure or revenue expenditure.
Analysis: The replacement of worn-out cable lines used for drawing electricity to the cinema house was treated as expenditure incurred to secure constant and uninterrupted power supply. The fact that the line belonged to the electricity board and was replaced at the assessee's cost did not change the character of the outlay. The expenditure was held to be incurred in the ordinary course of business and not to bring into existence a capital asset.
Conclusion: The expenditure was revenue expenditure and the disallowance was deleted in favour of the assessee.
Issue (ii): Whether the expenditure on complimentary passes was allowable as business expenditure or was disallowable as entertainment expenditure.
Analysis: The complimentary passes issued to authorities, distributors and others were found to be given for business purposes and not by way of hospitality or entertainment. The expenditure was therefore treated as incurred wholly for the purposes of business.
Conclusion: The expenditure was allowable as business expenditure and the addition was deleted in favour of the assessee.
Final Conclusion: The assessee succeeded on both grounds and the appeal was allowed.
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