Revenue Expenditure

[Ethirajan Parthasarathy]

A partnership is into business of Layout forming and selling plots. The undeveloped land was contributed by one of the partners towards his capital. Before all sites were sold, the said partner retired and partnership was re- constituted.

As per rules in Karnataka, the Firm had to pay stamp duty and registration fee on value of sites remaining unsold.

The query is whether such payment of stamp duty and registration charges for registering the re-constituted firm is allowable expenditure u/s 37.

[KASTURI SETHI]

Dear Sir,

Stamp duty and registration charges are revenue expenditure as held by Karnataka High Court. This case law is based on the judgement of the Supreme Court.

2022 (9) TMI 54 - KARNATAKA HIGH COURT DR. BHUJANG SHETTY VERSUS THE ADDITIONAL COMMISSIONER OF INCOME TAX, RANGE-5 BENGALURU

[Arjun Gupta]

Only that expenditure which is incurred wholly for the business is allowable under S.37, and at the same time it must not be capital expenditure. Since you are in the business of selling plots, the expenditure towards registration and stamp duty on reconstitution may be claimed as revenue expenditure since it is a 'recurring' expenditure on purchase and sale of plots. A recurring expenditure is usually a revenue expenditure- so you may say that stamp duty and registration charges are usually borne by me while purchasing and selling plots and the same is to be debited to P/L Account.

It would be easier to tell with further facts on record.

AI Summary

Revenue expenditure: stamp duty and registration on firm reconstitution may qualify as deductible under Section 37. Whether stamp duty and registration charges paid on partnership reconstitution are deductible under Section 37 depends on whether they are revenue expenditure wholly incurred for the business and not capital in nature. Respondents note that recurring expenditures incidental to buying and selling plots are ordinarily revenue, one citing a Karnataka High Court decision (following Supreme Court authority) treating such charges as revenue expenditure, and advise that stamp duty and registration on reconstitution may be claimed as revenue depending on the factual matrix.