capital or revenue expenditure

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rajesh (Querist)
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27 April 2009 one of our client has paid Rs. 15,21,650/-. to madhya gujarat ele. co. towards line charges, service connection charges and prorata charges for 2100 kva.

My question is wheter it is revenue expenditure or it is to be capitalised?
Also whether tax is to be deducted or not on such payment as according to me it is one type of contract ?

Shashi Mohan Jha

Shashi Mohan Jha (Expert)
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27 April 2009 clarify if teh amount is refundable. In case they unsubscribe the connection, can they sale the installations and get the realisation..these would help in undertansind the nature of the expenses.

taxindiaconnect

taxindiaconnect (Expert)
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27 April 2009 Further facts will definitely be helpful in forming an view on this, however since no assets is coming in existence in the books of the company by paying this amount to electricity department, this is not a capital expenditure, hence needs to be charged to revenue account in books and is also allowable as per IT Act under section 37(1) being an expenditure incurred for the wholly for the business purpose. Hope this serves the purpose.

CA Nitin Wadhwani

CA Nitin Wadhwani (Expert)
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28 April 2009 I agree with Mr.Rajesh that since no asset is coming into existence, it can be treated as revenue expenditure and accordingly tax needs to be deducted u/s 194C.

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