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April 2012

Business expenditure: Capital or revenue expenditure: Section 37 of Income-tax Act, 1961: A.Y. 1993-94: Construction business: Amount spent for acquiring unfinished works and inventories of another company: Revenue expenditure.

By K. B. Bhujle, Advocate
Reading Time 1 mins
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The assessee was engaged in the business of construction of buildings. The assessee entered into an agreement with AFPL to takeover by assignment and complete all the pending projects/contracts/work-inprogress remaining to be completed by the transferor company. For the A.Y. 1993-94, the assessee claimed deduction of the payment of Rs.3,20,00,000 made to AFPL as revenue expenditure. The Assessing Officer disallowed the claim holding that the expenditure is capital in nature. The Tribunal upheld the disallowance.

On appeal by the assessee, the Madras High Court reversed the decision of the Tribunal and held:

“(i) What was transferred was in the nature of stockin- trade and not the entire building division of the transferor company. There were no clauses to lead to the inference that with the transfer of the ongoing projects awaiting agreements to be signed, the transferor company had transferred its entire business.

(ii) The expenditure was deductible as revenue expenditure”

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