This article is basically based on those expenditure which are incurred in day to day operations and interestingly some people bluntly say that all such expenditure are revenue in nature. This article is basically an awareness regarding which expenditures you can book u/s 37(1) that is general deductions.General Deductions and their taxability. In computing taxable profits and gains of business/profession, deduction shall be allowed in respect of any other expenditure on fulfillment of following conditions:- a)      Expenditure should not be of a nature described in section 30 to 36 b)      Expenditure is incurred in the previous year, after business is set up. c)       Expenditure is not in the nature of personal expense of the assessee. Held assessee maintained its accounts on mercantile system of accounting. There was no finding by the assessing officer on correctness or completeness of account and assessee had complied with Accounting Standards laid down by Central Government. Loss suffered by assessee on account of fluctuation in rate of exchange as on date of balance sheet could be allowed as an expenditure under section 37(1) notwithstanding fact that liability had not been actually discharged in the year in which fluctuation in rate of foreign exchange had occurred. It should have been laid out or expended wholly and exclusively for the purpose of business or profession, carried on by the assessee, the profits of which are taxable. According to the explanation, any expenditures incurred by an assessee for any purpose which is an offence or which is prohibited by law shall not be deemed to have been incurred for the purpose of business or profession and no deduction or allowance shall be made in respect of such expenditure. The assessee claimed deduction of fine for belated payment of excise duty instalment. The High Court held that it had been clearly found though termed as fine, the payment was not in nature of punishment but was by way of compensation. The payment was deductible. Under section 37(2B) expenses on advertisement to any souvenir, brochure, tract, pamphlet etc published by a political party are disallowed . The provision overrides section 37(1). CBDT has instructed that interest on delayed payments to SSI/SME shall not be allowed as deduction. Held advisory services expenditure for regulatory compliance in relation to buyback of shares is not ‘capital’ in nature. The High Court held that the assessee had not acquired the benefit or addition of enduring nature because after the buyback, benefit or addition of enduring nature would not arise as capital employed haaad, in fact, gone down. In JCT Electronics Ltd, the assessee company had become a sick unit and on reference the BIFR gave substantial relief. The services of chartered accountants were engaged which resulted in preparation of final restructuring scheme. On account of assistance renedere by the chartered accountants, major concession and substantial reliefs were given to the assessee. Payment made to the Chartered accountants was claimed by the assessee as revenue expenditure. The Assessing Officer treated the expenditure as capital as it gave an advantage of an enduring nature. High Court held that the word capital connotes permanency and the capital expenditure is therefore, closely akin to the concept of securing something, tangible or intangible property so that it could be of a lasting or an enduring benefitto the enterprise in issue. Analysis 1)      Deduction under this section shall be allowed on fulfillment of following condition:- a)      Expenditure should not be of a nature described in section 30 to 36. This would mean that an expenditure which is described u/s 30 to 36 can never be claimed u/s 37(1). b)      Expenditure is incurred in the previous year, after business is set up. c)       Expenditure is not in the nature of personal expenses of the assessee. d)      Expenditure is not in the nature of capital expenditure. 2)      It should have been laid out or expended wholly and exclusively for the purpose of business or profession, carried on by the assessee, the profits of which are taxable. Section 37(1) disallows an expenditure which is in the nature of an offence on infringement of the law. Offence occurs on violating law for which the crown should direct a punishment. Some General Case Studies The assessee purchased second hand plant and machinery. There upon the machinery was dismantled and the parts were used for servicing the existing old machinery on need basis. Comment on the allowability of expenditure incurred for second hand plant and machinery. Karnatka High Court in the case of Dr. Aswat N. Rao has ruled that in the given case the plant was purchased with an intention, never to use it on a stand alone basis. The intention was for servicing existing plant and machinery. The Court observed that the spares which were used did not enhance the life of the existing plant and machinery hence the expenditure was revenue in nature Rallis lts was situated in a remote place and its employees were the members of a club. The club was the only source of recreation to the employees. Rallis ltd paid a sum of Rs. 10 Lakhs to the club for renovation and repairs of the club building which had been damaged. Rallis ltd claimed a deduction of the same as business expenditure. Whether its claim is tenable in law? The High Court observed that since the company was situated in a remote place, the club was the only source of recreation for its employees, who were also members of the club. So if the assessee company paid some amount for the upliftment of the club in an effective way, then such payment was made in the interest of the assessee so that its employees remained happy and consequently the work of the assessee was not hampered in any way due to dissatisfaction on the part of the employees.As the payment of Rs. 5 lakhs was made by the assessee to the club keeping its business interest in mind, the said payment must be held to be business expenditure, and accordingly, as per section 37 the assessee company was entitled to get deduction.  Purchase of software components for upgradations of computers The upgradations of computers for improving their configuration and enhancing efficiency, but without making any structural alterations is not a change of an enduring nature. Therefore, expenditure incurred on purchase of software components has to be treated as a revenue expenditure.   Thanks for reading for this article. 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