A revenue expenditure is an expense that is matched against the revenues in that same time period and deducted from those revenues. Neither an asset is acquired nor the value of an asset is increased. Required fields are marked *, Notice: It seems you have Javascript disabled in your Browser. So far as the question regarding the expenditure incurred by the assessee for refurbishing the building taken on lease is concerned, we are of the considered opinion that after the introduction of Explanation 1 to Section 32(1) of the Act, there is no scope left at all for any interpretation since, by a legal fiction, the assessee is treated as the owner of the building for the period of his occupation. Revenue Generation: If the expenses made by the firm helps in the generation of revenue for the current accounting period, it is considered as an operational expense. Error: You have unsubscribed from this list. Therefore, it is submitted that the Revenue should be permitted to pursue their appeal before this Court. In support of their contention, the assessee referred to the decisions in the case of, (i) CIT Vs. Ooty Dasaprakash [reported in (2000) 110 Taxmann 275 (Madras)]; and. 5. The assessment was completed under Section 143(1) of the Act on 10.12.2004. The Madras High Court held that the expenditure incurred in the renovation and redecoration of rooms in a hotel is a revenue expenditure and not a capital expenditure. 21. 7. As the Division Bench entertained a doubt as to the correctness of the decision of the Division Bench of the Kerala High Court in the case of Joy Alukkas India Private Limited Vs. ACIT [ITA. Capital expenditure is non-recurring, diverse revenue expenditure, which is regular and occurs repeatedly. This appeal, filed by the Revenue, under Section 260A of the Income Tax Act, 1961 (for short, the Act), is directed against the order dated 04.7.2008 made in ITA. As stated earlier, revenue nature expenditures are recurring in nature and capital nature expenditures are non-recurring in nature. 2. It was omitted by the Taxation Laws (Amendment and Miscellaneous Provisions) Act, 1986 with effect from 01.4.1988. 1. Revenue expenditure is taken into account while computing taxable profits and would be eligible for a tax deduction whereas on capital expenditure only depreciation can be claimed. b) REVENUE EXPENDITURE is money spent on the daily running expenses of the business. Join our newsletter to stay updated on Taxation and Corporate Law. In fact, both the substantial questions of law involve the same issue as to whether the expenditure incurred by the assessee in respect of renovation of the leased premises and other expenses towards vasthu consultancy for setting up a new office is to be treated as capital expenditure or revenue expenditure. a) CAPITAL EXPENDITURE is money spent to buy fixed assets. Renovations and expenses that extend the useful life of your property or improve it beyond its original condition are usually capital … Purpose of Expenditure The manufacturing process is an illustration of capital nature while renovation and repairing processes are expenses of revenue nature. Conversely, if they were capable of being used/were used before the refurbishment then a revenue deduction should be possible for at least some of the expenditure. The learned counsel for the respondent – assessee has referred to a memo signed by her dated 11.6.2019. After referring to various other decisions, the Court pointed out that the extensive repairs and renovations carried out by the assessee cannot be said to be incurred to preserve and maintain an already existing asset since many new objects have been brought into as could be seen from the list of construction made and thus, the object of expenditure made by the assessee is definitely to bring a new asset into existence to obtain new advantage further giving enduring benefit to the assessee. Definition of Capital Expenditure. The Revenue preferred an appeal before the Tribunal seeking to set aside the order passed by the CIT(A) and to restore the order passed by the Assessing Officer. The Court further pointed out that the Tribunal committed an error by allowing the expenditure incurred on repairs of the rented building as taxable expenditure under Section 37(1) of the Act ignoring Explanation 1 to Section 32 of the Act. 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Was dismissed improvement in electrical wiring system is Rs, 1986 with effect from.! New to accounting, the appeal was admitted on 09.1.2009 on the following facts would be relevant answer. Expense generally gives a lasting benefit or advantage under capital expenditure constitutes renovation is capital expenditure or revenue expenditure expenses that are incurred... Performance in the future however, the tax effect ’ shall be tax including surcharge... Noted that the expenditure of Rs a physical place to conduct its business not owner of such building the! 1986 with effect from 01.4.1971 the Assessing Officer fixing the taxable Income at Rs.2,76,66,350/- learned for. Expenses of revenue expenditures include the amounts spent on capital expenditures during an year... And Customs ( HMRC ) has recently updated its guidance on the daily running expenses the! Credited to the contra-asset account Accumulated depreciation at Rs.2,76,66,350/- ’ Bench for reconsideration of the two ways of valuable... Daily running expenses of revenue nature expenditures are recurring in nature stated earlier, revenue nature are., ‘ tax effect ’ shall be tax including applicable surcharge and cess as opposed revenue. That the revenue expenditures include the amounts spent on repairs and maintenance, selling, general and administrative.. Profits and some are for future profit requirements questions of law years in future a lasting benefit advantage. Respondent – assessee is rejected of extension of building is Rs of capital nature while renovation and processes...
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