1985 (7) TMI 176 - AT - Income Tax

Diesel generator purchase deemed capital expenditure by tribunal, not deductible as revenue expense

AUTOCAP INDUSTRIES. Versus INCOME TAX OFFICER.

AUTOCAP INDUSTRIES. Versus INCOME TAX OFFICER. - TTJ 024, 271, Issues:1. Whether the expenditure incurred towards the purchase of a diesel generator is a revenue or capital expenditure.Comprehensive Analysis:The appeal pertains to the assessment year 1983-84, where the Income Tax Officer (ITO) rejected the claim of the assessee that the expenditure of Rs. 1,16,865 on a diesel generator was revenue expenditure, treating it as capital expenditure. The CIT (A) observed that the ITO did not provide details for disallowing the claim. The assessee argued that the generator was necessary to maintain production capacity due to power cuts, and it did not enhance production capacity. The CIT (A) upheld the capital nature of the expenditure, citing legal precedents. The assessee contended that the generator was essential for production efficiency and profitability, not for capital enhancement, while the Departmental Representative supported the CIT (A)'s decision.The main issue before the tribunal was whether the expenditure on the diesel generator constituted revenue or capital expenditure. Referring to legal principles established by the Supreme Court, the tribunal noted that capital expenditure is incurred for the initiation or extension of a business, or for acquiring lasting benefits. The tribunal also cited a case emphasizing that not every enduring advantage is capital expenditure, but only those that bring lasting benefits to the business. The assessee argued that the generator was essential for production continuity during power disruptions, but the tribunal held that the expenditure, whether for production maintenance or standby purposes, was capital in nature, adding to the lasting benefit of the business.Furthermore, the tribunal distinguished a previous case where expenditure on accessories was considered revenue in nature, as the diesel generator was not integral to the assessee's machinery. The tribunal emphasized that the purchase of a generator added to the capital structure and provided an enduring benefit to the business. Despite the assessee's reliance on a tribunal decision regarding accessories, the tribunal concluded that the expenditure on the generator was capital in nature. Consequently, the tribunal confirmed the lower authorities' decision, dismissing the assessee's appeal on this issue.