Para 4.7 — MSO (A&E)
Original Rule Text
4.7 Capital expenditure may be broadly defined as expenditure incurred with the object of increasing concrete assets of a material and permanent character. The following considerations are relevant in arriving at a decision whether or not expenditure is of a capital nature.
What This Means
Capital expenditure is broadly defined as spending that creates or increases concrete, material, and permanent assets. Not all large expenditures qualify — the key test is whether the spending results in an asset of lasting value. Several specific considerations help determine whether expenditure is truly of a capital nature.
This explanation was generated with AI assistance for educational purposes. Always refer to the official gazette notification for authoritative text.
Key Points
- 1Capital expenditure aims to increase concrete assets of a material and permanent character
- 2The asset need not be productive or revenue-generating to qualify as capital
- 3The asset must belong to the authority incurring the expenditure
- 4Grants to local bodies for their assets cannot be treated as government capital expenditure
- 5Expenditure on temporary assets is not normally capital expenditure
Practical Example
A state government builds a new government hospital (permanent asset it owns) — this is capital expenditure. It also gives a Rs. 10 crore grant to a municipal corporation to build a community hall (asset owned by the municipality) — this cannot be treated as the state's capital expenditure. And it erects temporary sheds for an exhibition — this is revenue expenditure because the asset is not permanent.
This explanation was generated with AI assistance for educational purposes. Always refer to the official gazette notification for authoritative text.
Frequently Asked Questions
Does the asset need to generate revenue to be classified as capital?▼
Can government grants for building assets owned by others be treated as capital expenditure?▼
This explanation was generated with AI assistance for educational purposes. Always refer to the official gazette notification for authoritative text.