Capital expenditure or revenue expenditure

Page no : 2

Ritesh Kumar Udaipuria (Article Assistant) (25 Points)
Replied 01 July 2014

Thanks everyone for your replies. i think it should be charged to Revenue since UPS is a integral part of Computer but as Sahil Said one of my client capitalised UPS separately & charged 60% depreciation on it.

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CA Saroj Kumar (Keen to learn something new every moments) (2588 Points)
Replied 01 July 2014

every one argue is right ..its depend upon the judgement upon the company whether they want to charge it revenue or want to capitalsied..... Amount does matters if quatity is more than one. even in case of single ups amount does matters... Do ur decision as per ur choise.

sumit (Self Employed with GST Working) (57 Points)
Replied 01 July 2014

Roopali and all others,

I fully agree with Rupali's points given on Guidence Notes However, whether an expenditure is a Capital or Revenue. For this, there are two point of views:

1) As per Income Tax Act

2) As per Companies Act

1) As per Income Tax and Rules (Rule 5) :

UPS- As UPS is not an integral part of Computer, it will NOT be entitled to depreciation at HIGHER rate applicable for computers. (Nestle India Ltd. vs. Dy. CIT (2008) 27 SOT 9 (Delhi- Trib.) --Masterguide to Income Tax Rules

As per above Rule/case law it is clear that purchase of UPS is treated as Capital Expenditure, hence, provided depreciation.

1) As per Companies Act (as per New Schedule VI) : An asset is a current asset if it expected to be realised in, or is intended for sale or consumption in, the companies normal operating cycle (it is assumed to have a duration of 12 months).

Other than above, all the assets are NON-CURRENT /FIXED ASSETS or Capital Expenditure --Also As per ICAI course Book

As per above definition, UPS is a capital Expenditure because it is not expected to be realised in Normal Operating Cycle.

RAM : The money spent on Assessories/Components of a newly purchased Asset (It may be Purchase of Second Hand Asset) is of Capital nature whereas small components purchased or repairs done lateron for the efficiency of running of the machine and it is transferred as Revenue Expenditure.

-- J R Monga (B. Com-H I Yr. Book)

1 Like

Ram Ahivale (Accountant) (51 Points)
Replied 03 July 2014

Hey my client purchased new car on his wifes name but my quetion is can i take in put credit of vat???

sumit (Self Employed with GST Working) (57 Points)
Replied 03 July 2014

Ram,

Taking of Input credit of VAT on capital goods depends upon the method adopted by you. so please tell me which method you have adopted for VAT calculation