| | | | | |
| CAPITAL EXPENDITURE | | | | If the nature of payment in the hands of payer is |
| REVENUE EXPENDITURE | | | | of revenue nature, it will be revenue expenditure. |
| 1. Nature of Assets purchased | | | | |
| Any expenditure incurred to acquire a fixed asset | | | | CAPITAL EXPENDITURE |
| or in connection with installation (expenses for | | | | |
| installation) of fixed asset is capital expenditure. | | | | 1. Cost of reconstructing, refurnishing, etc. of a |
| | | | | business building. |
| Any expenditure incurred as price of goods | | | | 2. Payment made with a view to keeping his |
| purchased for resale along with other necessary | | | | competitor out of his field of business |
| expenses incurred in connection with such | | | | 3. Expenditure incurred in converting business |
| purchase are revenue expenses. | | | | premises when switching over from manufacture |
| 2. Discharging Liability | | | | of one product to another. |
| A payment made by a person to discharge a | | | | 4. Expenditure on litigation in connection with |
| capital liability is a capital expenditure | | | | acquiring or curing defective assets of the |
| | | | | business. |
| | | | | 5. Compensation paid for cancellation of contract |
| An expenditure incurred to discharge a revenue | | | | for the purchase of machinery. |
| liability is revenue expenditure | | | | 6. Price paid for the purchase of partner’s |
| 3. Based on Transactions | | | | share in the firm. |
| If expenditure is incurred to acquire a source of | | | | 7. Expenditure incurred on the maintenance of |
| income, it is capital expenditure e.g., purchase of | | | | business reputation |
| patents to produce picture tubes of TV set. | | | | |
| | | | | |
| | | | | REVENUE EXPENDITURE |
| An expenditure incurred to earn an income is | | | | |
| revenue expenditure. E.g. salary, advertisement | | | | 1. Payment made for use of quota rights, or for |
| etc. | | | | use of patents and trade marks. |
| 4. Purpose of Transactions | | | | 2. Payment made for technical assistance. |
| If the amount is spent on increasing the earning | | | | 3. Expenditure incurred to send employees abroad |
| capacity of an asset it is capital expenditure | | | | for practical training |
| | | | | 4. Repairs and maintenance incurred for |
| | | | | machinery |
| Any expenditure incurred on keeping an asset in | | | | 5. Discharging compensation package to the |
| running condition is revenue expenditure | | | | employees |
| 5. Nature of Payments in the hands of payer | | | | 6. Expenditure incurred in raising loans, e.g., stamp |
| If the expenses is incurred for acquiring capital | | | | duty, registration and legal fees, brokerage etc. |
| asset from revenue receipts is also treated as | | | | 7. Any such expenditure incurred wholly, totally, |
| capital expenditure | | | | necessarily for the business. |