A
RESEARCH REPORT ON
A STUDY ON
TYPES OF EXPENDITURE –
REVENUE OR CAPITAL EXPENDITURE
Done By
KRISHNA DEEPIKA KODURI -
MBA 2013-25
CENTER FOR MANAGEMENT STUDIES,
NALSAR UNIVERSITY OF LAW,
HYDERABAD
CT Assignment
CASE -1
I. Facts Of The Case:
• The Assesse dealt in business of manufacture & sale of firecrackers.
• A petrol van was used for the sake of business.
• The old petrol engine was replaced by a new diesel engine & old body by new body.
• A sum of Rs.50,000 was spent on said vehicle for assessment year 2004-2005.
II. Analysis of facts:
• The assesse has replaced the petrol engine with diesel engine and old body with new body just for the sake of business.
• The replacement of the engine increases life of the van, thus …show more content…
CASE : Honda Siel Cars India Ltd. 1 ITR 497.
The expenditure which is incurred while restoring the roof to original condition wouldn’t amount to capital expenditure. As the expenditure incurred on removal of defect in design of car relates to stock in trade of the assesse, it would amount to business expenditure but not capital expenditure. Hence deductions can be claimed under sec 37(1).
V. Final Analysis :
In the case given of manufacture and sale of the firecrackers, replacing petrol engine with a diesel engine would result in capital expenditure. In order to increase the useful life of the vehicle and also to improve the earning capacity of business, and as it is first time installation of a diesel engine, it would be capital expenditure.
If expenditure is incurred for acquiring or bringing into existence an asset or advantage of enduring benefit to the business that is being carried on, or for extension of existing business or for substantial replacement of an existing business asset, then the expenditure would be capital in nature.
Hence Rs.50,000 claimed for deductions according to sec 37(1) are not justified.
Case 2:
I. Facts of the …show more content…
It had a factory in Mumbai, now it wants to expand to Rajasthan. With regard to this expansion the assesse hired Messrs. Dorr Oliver Ltd and obtained project report and market survey for which on a whole Rs 3,70,000 is paid.
As the business is being expanded , initiation of new business is taking place hence it would be capital in nature. Hence no deductions according to sec 37(1).
V. Final Analysis :
The expenditure incurred on feasibility studies, consultation charges on relocation of a plant without creating new asset would amount to revenue expenditure.
If the expenditure is incurred while acquiring an asset or the advantage is for running the business or for working out that asset with a view of producing profits or in case if asset is not acquired permanently, the possession of which condition precedent for running of business would result in revenue expenditure.
In the case of pharmaceutical industry as assesse wants to relocate his plant & machinery to another location to improve the efficiency of the firm, without changing the assets, then the Rs3,00,000 paid as consultation would be regarded as revenue expenditure and would be deducted according to sec
RESEARCH REPORT ON
A STUDY ON
TYPES OF EXPENDITURE –
REVENUE OR CAPITAL EXPENDITURE
Done By
KRISHNA DEEPIKA KODURI -
MBA 2013-25
CENTER FOR MANAGEMENT STUDIES,
NALSAR UNIVERSITY OF LAW,
HYDERABAD
CT Assignment
CASE -1
I. Facts Of The Case:
• The Assesse dealt in business of manufacture & sale of firecrackers.
• A petrol van was used for the sake of business.
• The old petrol engine was replaced by a new diesel engine & old body by new body.
• A sum of Rs.50,000 was spent on said vehicle for assessment year 2004-2005.
II. Analysis of facts:
• The assesse has replaced the petrol engine with diesel engine and old body with new body just for the sake of business.
• The replacement of the engine increases life of the van, thus …show more content…
CASE : Honda Siel Cars India Ltd. 1 ITR 497.
The expenditure which is incurred while restoring the roof to original condition wouldn’t amount to capital expenditure. As the expenditure incurred on removal of defect in design of car relates to stock in trade of the assesse, it would amount to business expenditure but not capital expenditure. Hence deductions can be claimed under sec 37(1).
V. Final Analysis :
In the case given of manufacture and sale of the firecrackers, replacing petrol engine with a diesel engine would result in capital expenditure. In order to increase the useful life of the vehicle and also to improve the earning capacity of business, and as it is first time installation of a diesel engine, it would be capital expenditure.
If expenditure is incurred for acquiring or bringing into existence an asset or advantage of enduring benefit to the business that is being carried on, or for extension of existing business or for substantial replacement of an existing business asset, then the expenditure would be capital in nature.
Hence Rs.50,000 claimed for deductions according to sec 37(1) are not justified.
Case 2:
I. Facts of the …show more content…
It had a factory in Mumbai, now it wants to expand to Rajasthan. With regard to this expansion the assesse hired Messrs. Dorr Oliver Ltd and obtained project report and market survey for which on a whole Rs 3,70,000 is paid.
As the business is being expanded , initiation of new business is taking place hence it would be capital in nature. Hence no deductions according to sec 37(1).
V. Final Analysis :
The expenditure incurred on feasibility studies, consultation charges on relocation of a plant without creating new asset would amount to revenue expenditure.
If the expenditure is incurred while acquiring an asset or the advantage is for running the business or for working out that asset with a view of producing profits or in case if asset is not acquired permanently, the possession of which condition precedent for running of business would result in revenue expenditure.
In the case of pharmaceutical industry as assesse wants to relocate his plant & machinery to another location to improve the efficiency of the firm, without changing the assets, then the Rs3,00,000 paid as consultation would be regarded as revenue expenditure and would be deducted according to sec