COMMISSIONER OF INCOME TAX CENTRAL MADRAS Vs. DASAPRAKASH

JUDGEMENT

(1.) THE Income-tax Appellate Tribunal, Madras Bench, has under section 256 (1) of the Income-tax Act, 1961, referred the following question of law for the opinion of this court. "whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in law in holding that the expenditure of Rs. 37, 390 was not not capital nature but it was an expenditure incurred by the assessee wholly for the purposes of its business and allowable as a deduction under section 37 of the Income-tax Act, 1961 "" *

(2.) THE assessee is a firm carrying on the business of running a hotel. That hotel business was previously run by one Seetharama Rao and subsequently it was converted into a partnership. We are concerned in this reference with the assessment year 1965-66, the relevant previous year ending on 31st March, 1965. THE expenditure which is now in dispute has been described as follows : Rs. 8, 990 Putting decorated mirrors with pictures of religious personages in the pink hall of the hotel used as dining cum-lecture hall. 14, 300 Putting up plaster-moulded roof decoration in the above hall with a view to beautify the premises. 11, 567 Fixing plywood panels in restaurant halls and in some living rooms. 900 Fixing carpet in the reception hall. 1, 066 Replacement of old and worn-out hinges, etc. 567 Putting frosted glass in the pink hall. Total Rs. 37, 390

(3.) THE Income-tax Officer considered that the expenditure given above could not be said to be on account of current repairs to the building and that the expenditure incurred had brought into existence an asset of enduring nature. He, accordingly, treated this expenditure as of capital nature and disallowed the said sum of Rs. 37, 390 in computing the total income of the firm. THE assessee field an appeal to the Appellate Assistant commissioner who observed that the expenditure was incurred so as to improve the earning scope of the business and that the expenditure was more of initial nature rather than a regular business expenditure. He held that the expenditure in question had resulted in a benefit of enduring nature to the assessee-firm. He, therefore, confirmed the disallowance. On further, appeal, the Tribunal held that, having regard to the circumstances of the present case, the expenditure incurred by the assessee-firm was not of capital nature and that the expenditure was incurred wholly for the purpose of its business and was, therefore, allowable as deduction under section 37 of the Act. Aggrieved by this order of the Tribunal, the revenue has come up with this reference raising the question mentioned above.