CONCEPT OF CAPITAL AND REVENUE EXPENDITURE IS DIFFERENT IN TAX

CONCEPT OF CAPITAL AND REVENUE EXPENDITURE IS DIFFERENT IN TAX

Go ahead read the fine print….
Please also note that the concept of replacement and capital expenditure is totally
different in the case of accounts and in the case of income tax.
For e.g. If there is a car which has a petrol engine and which is replaced by a diesel
engine then in accounts this is termed as a capital expenditure but this a totally revenue
expenditure in the case of income tax
Please note that income tax has the following opinion.
Even before replacement there was an engine and now also there was an engine, so
the matter is irrelevant whether this is a diesel engine and the previous one was a petrol
engine. It has not created a new asset and so this is not considered as a capital
expenditure and is merely a replacement and this TREATED AS A REVENUE
EXPENDITURE AND ALLOWED TO BE DEBITED TO THE PROFIT AND LOSS
ACCOUNT. [Nathalal Bankatlal Parikh Vs. CIT]
The fact that the assessee is doing one kind of business does not stop him from
claiming the deduction of interest on loan taken for the purpose of other business. In a
case of C.T. Desai Vs CIT it was decided as follows.
The assessee was engaged in the business of paper manufacturing and he had had
taken for developing a garment business then interest on the loan taken for garment
business can be allowed as deduction from the business of paper manufacturing even if
the business of garment is not started or yet to start or did not start at all.
Replacement of asbestos roof to a concrete roof is considered as a replacement and
not a capital expenditure [Dhakeshwari Mills Vs CIT]
Replacement of a low power engine to a high power engine to a ship is considered as a
replacement and allowed to be debited to the profit and loss account [Scindia Shipping
Vs CIT]