Differentiation between the capital Expenditure when dealing with Tax statement and tax Law

1. CAPITAL AND
REVENUEC H : 6
I N C O M E TA X
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2. CAPITAL AND REVENUE EXPENDITURE
REVENUE EXPENDITURE:
The expenditure does not increase of a permanent asset.
CAPITAL EXPENDITURE:
An expenditure occur dew to increase a permanent asset.
PURCHASING AN ASSET:
The amount spent on the purchase of a Fixed Asset is a Capital Expenditure.
For example Cost of land, Building, copyright, designs.
The amount spent on the purchase of a Floating Asset is a Revenue Expenditure.
For example Cost of the repairing of old machinery, Exhibition, salary and pension paid to
employee.
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3. CAPITAL AND REVENUE RECEIPTS
SALE OF AN ASSET:
Any receipt on account of fixed asset which is meant for keeping to earn profit is a Capital
Receipt.
For example The sale of a building that is used for Business.
A receipt on account of floating or circulating asset is a Revenue Receipt.
For example the sale of stock in trade.
AMOUNT RECEIVED ON ACCOUNT OF A RIGHT:
If a person is owner of a Right, e.g. copyright, Trademark, etc.
If the amount is received for the complete surrender of right, it will be a Capital Receipt.
If the right is not surrender by the owner and is given for use, for a specific period, the amount
received will be a Revenue Receipt.
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4. CAPITAL AND REVENUE RECEIPTS
SUBSTITUTION OF SOURCE OF INCOME:
An amount received in the substitution of source of income is a Capital Receipt.
But where it is a substitution of income alone it will be a Revenue Receipt.
HANDS OF RECIPIENT:
One should always judge it from the point of view of the person who is receiving it. It should not
be considered from the point of view of a payer.
LUMP SUM RECEIPT:
A lump some receipt can be a Revenue Receipt and in certain cases, an amount received
monthly or annually can be a Capital Receipt.
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5. CAPITAL AND REVENUE RECEIPTS
ISOLATED TRANSACTIONS:
The motive of the person receiving the amount will decide whether it is a capital or a revenue
receipt.
Premium on issue of shares is a Capital Receipt.
The profit on sale of a house by property dealer is a Revenue Receipt.
CAPITAL LOSS:
When a person incurs a capital expenditure ,he gets an asset and rights. In case of a capital
loss, the amount invested in the business is completely lost.
For example:
Loss due to insolvency of a business.
Theft in the business after business hours.
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