TaxTMI 
TaxTMI 
2009 (1) TMI 444
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....sed return was filed by the assessee on January 4, 1993, showing a loss of Rs.43,72,27,027. In the revised return, the assessee claimed deduction under section 37 of the Act of 1961 on account of investment in construction of Ghosunda Dam as revenue expenditure. The expenditure was incurred by the assessee in construction of part of the dam inasmuch as it required a large quantity of water for day-to-day operation of its super smelter located at Charideria. The Assessing Officer disallowed the same on the ground that the expenditure incurred in construction of Ghosunda Dam was of capital nature. That apart, the deduction claimed by the asses see in respect of expenditure on the guest house was also disallowed by the Assessing Officer. 3. Aggrieved by the aforesaid order passed by the Assessing Officer, the assessee preferred an appeal before the Commissioner of Income-tax (Appeals). The Commissioner of Income-tax (Appeals) arrived at the finding that the expenditure made by the assessee which facilitates that the business should go on more profitably would be a revenue expenditure. The learned Commissioner of Income-tax (Appeals) opined that it does not make any change in the pr....
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....diture on guest house to Rs. 4,07,522 even though expenses allowed are not allowable under the specific provisions of section 37(4) and 37(5) of the Income-tax Act?" It is contended by the learned counsel for the Revenue that the assessee has received enduring and lasting benefit out of the investment made by it in construction of the dam. According to the learned counsel for the Revenue, the controversy involved in this appeal stands covered by the decision of the hon'ble Supreme Court in the matter of Devidas Vithaldas and Co. v. CIT [1972] 84 ITR 277 wherein it has been categorically held that where expenditure is for bringing into existence new asset or an advantage of an enduring nature and is made once and for all for procuring enduring benefits shall be treated to be expenditure of capital nature. It is further submitted by the learned counsel that the assessee has not claimed this expenditure as revenue in nature in the original return and that apart, in its books of account, the assessee has treated the investment as capital expenditure therefore, the question of treating the said expenditure as revenue expenditure does not arise. Regarding the guest house expenses, it ....
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....angible property or corporeal or incorporeal right so that they could be of a lasting or enduring benefit to the enterprise in issue. Revenue expenditure on the other hand is operational in its perspective and solely intended for furtherance of the enterprise. This distinction though candid and well accepted, yet is susceptible to modification under peculiar and distinct circumstances. (CIT v. Ashok Leyland Ltd. [1969] 72 1TR 137 (Mad)). 10. But then, in the absence of the statutory definition of the "capital and revenue expenditure" no universal test can be laid down so as to determine the nature of expenditure. As laid down by the hon'ble apex court in the matter of Empire Jute Company Ltd. v. CIT [1980] 124 ITR 1, there may be cases where expenditure, even if incurred for obtaining an advantage of enduring benefit, may nonetheless be on the revenue account and the test of enduring benefit may break down. It is not every advantage of enduring nature acquired by an assessee that brings the case within the principle laid down in this test. What is material to consider is the nature of the advan tage in a commercial sense and it is only where the advantage in the capital field th....
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....other expenses which would have been ordinarily allowable as revenue expenditure of the assessee's business, such expenses are to be treated as having been incurred wholly and exclusively for the business of the assessee and revenue expenditure. Such expenses cannot be construed as a capital expenses." 12. Adverting to the facts of the present case, admittedly, the assessee's super smelter plant requires adequate quantity of water for its operation and unless and until, water is available, the super smelter plant would not function and would not be able to produce any items. Admittedly, the Ghosunda dam has been constructed by the State Government and the assessee has made expenditure for its alteration so as to ensure sharing of the water with the State Government without having any right or ownership in the dam or the water. Even, the assessee's share of water is also determined by the State Government. Thus, the expenditure incurred by the assessee for commercial expediency relates to carrying on of business and falls within such expenditure as a prudent businessman may incur for the purpose of the business. The operational expenses incurred by the assessee solely intended fo....