Section 34 (Act of 2025)

Section 34 (Act of 2025) — the law in short

What the courts have decided on section 34 (Act of 2025), in one screen. Read this first; open an entry when you need the facts, the reasoning and the source.

• CIT v Madras Auto Service (P) Ltd Supreme CourtHelps taxpayer
  I demolished my landlord's building and put up a new one at my own cost, and the new building belongs to him. I got a 39-year lease at a fraction of the market rent for it. Is what I spent capital or revenue?
  Revenue, on these facts. The Supreme Court held that the expenditure has to be looked at from a commercial point of view and asked what advantage the assessee actually got. It got no capital asset, because the building belonged to the lessor from the moment the first brick was laid, and it could therefore claim no depreciation. What it got was a long lease of suitable premises at a rent far below the market, which is a saving of future rent - a saving in the revenue field. Whatever substitutes for revenue expenditure should normally be considered as revenue expenditure.
• Jonas Woodhead and Sons (India) Ltd v CIT Supreme CourtHelps department
  My collaboration agreement pays the foreign company a running royalty on turnover. The Department wants to treat a quarter of it as capital. Can a single royalty be split at all?
  It can. The Supreme Court upheld a finding that a quarter of the royalty was capital, on facts where the foreign firm had not merely supplied technical know-how but had furnished plans and designs and rendered valuable services in setting up the factory itself, the business was new, and after the agreement expired there was no bar on the assessee continuing to make the product. The Court held it difficult to treat the whole payment as revenue merely because it was calculated as a percentage of gross turnover. How the money is paid does not settle what it was paid for.
• Alembic Chemical Works Co Ltd v CIT Supreme CourtHelps taxpayer
  I paid a foreign firm a lump sum for technical know-how that raised the yield of a product I was already making. The Assessing Officer says section 37(1) is shut because I bought an asset of enduring benefit. Is the payment capital?
  Not on these facts. The Supreme Court held that the outlay was for the better conduct and improvement of the existing business and was therefore revenue. It reached that by refusing to treat the once-for-all payment and the enduring benefit as decisive: those ideas are not statutory conditions, there is no single definitive criterion, and what matters is the purpose of the outlay and its intended object and effect, judged in a common-sense way with regard to business realities. In a fast-moving field the know-how itself may lack the durability an enduring capital asset needs.

Listed strongest first: Supreme Court, then High Court, then Tribunal, then CBDT. Nothing here has yet been read in full by a chartered accountant — open an entry to see where it came from.