Expenditure incurred for running the business or working it, with a view to produce profits is in the nature of revenue expenditure

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Airport Authority of India vs. CIT (Delhi High Court) – The Supreme Court has held in the case of Assam Bengal Cement Co. Ltd. Vs. CIT (1995) 25 ITR 34 that‘”If the expenditure is made for acquiring or bringing into existence an asset or advantage for the enduring benefit of the business it is properly attributable to capital and is of the nature of capital expenditure If on the other hand it is made not for the purpose of bringing into existence any such asset or advantage but for running the business or working it with a view to produce the profits it is a revenue expenditure. If any such asset or advantage for the enduring benefit of the business s is thus acquired or brought into existence it would be immaterial whether the source of the payment was the capital or the income of the concern or whether the payment was made once and for all or was made periodically. The aim and object of the expenditure would determine the character of the expenditure whether it is a capital expenditure or a revenue expenditure.”

Applying the text to the crux of the case before it, the Court was influenced by the fact that the assessee had already been granted a mining lease and under that lease it had acquired full rights to carry on mining operations in the entire area including the railway area. The payment of Rs. 3 lacs was not made for grant of permission to carry on mining operation within the railway area, instead it was made towards the cost of removing the construction which obstructed the mining operation. In this premise, the expenditure was treated to have been made in relation to carrying on business in a profitable manner and was, therefore held to be on revenue account.