Revenue expenditure for pre-layer chick maintenance costs was allowed as part of earning poultry income.

Expenditure on feed and medicines for chicks during the pre-layer stage was treated as revenue expenditure because it was incurred to maintain the income-earning apparatus in the course of earning poultry income, not to acquire that apparatus. The chicks' acquisition cost was accepted as capital expenditure, but the subsequent maintenance costs were held to fall on the revenue side. The analogy to tea plantation cases was considered inapposite on these facts, and the disallowance was deleted.

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Issues: Whether expenditure incurred on feed and medicines for chicks during the pre-layer stage in a poultry business is revenue expenditure or capital expenditure.

Analysis: The chicks themselves were treated as the income-earning apparatus, while their acquisition cost was accepted as capital expenditure. The disputed expenditure was incurred to maintain the chicks until they attained the layer stage, and was found to be part of the process of earning income from the poultry business. The reasoning applied the principle that expenditure incurred in acquiring an income-earning asset is capital, whereas expenditure incurred in the process of earning income is revenue. The analogy drawn by the lower authorities from tea plantation cases was held inapposite on the facts, and the expenditure was held to fall on the revenue side.

Conclusion: The expenditure on feed and medicines for chicks at the pre-layer stage is revenue expenditure and the disallowance was deleted.

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