Income Tax Appellate Tribunal - Panji
Goa Tourism Development Corporation ... vs The Assistant Commissioner Of Income ... on 20 April, 2022
आयकर अपीलीय न्यायाधिकरण, पणजी न्यायपीठ, पणजी में।
IN THE INCOME TAX APPELLATE TRIBUNAL,
PANAJI BENCH, PANAJI
(Through Virtual Court at Raipur)
BEFORE SHRI RAVISH SOOD, JUDICIAL MEMBER
AND
SHRI JAMLAPPA D BATTULL, ACCOUNTANT MEMBER
आयकर अपील सं. / ITA No.: 101/PAN/2018
करधििाारण वर्ा / Assessment Year : 2010-2011
Goa Tourism Development Corporation Ltd.
2nd Fl. Prayatan Bhavan, Patto,
Panaji-Goa. PAN : AACG 7220 K . . . . . . . अपीलार्थी / Appellant
बिाम / V/s
Asstt. Commissioner of Income Tax,
Circle-1(1), Panaji, Goa. . . . . . . . . प्रत्यर्थी / Respondent
द्वारा / Appearances
Assessee by : Shri Sandeep Bhandare
Revenue by : Shri Sourabh Nayak
सनु वाई की तारीख / Date of conclusive Hearing : 25/02/2022
घोषणा की तारीख / Date of Pronouncement : 20/04/2022
आदेश / ORDER
PER JAMLAPPA D BATTULL, AM;
The present appeal of the assessee is assailed against the order of Commissioner of Income Tax-(Appeals), Panaji-1 [for short "CIT(A)"] vide order dt. 01/12/2017 passed u/s 250 of the Income-tax Act, 1961 [for short "the Act"] which in turn dove out of assessment order [for short "Ao"] dt. 28/03/2013 of Asstt. Commissioner of Income Tax, Circle-1(1), Panaji-Goa, [for short "AO"] u/s 143(3) of the Act for the assessment year [for short "AY"] 2010-11.
ITAT-Panaji Page 1 of 13Goa Tourism Development Corporation Limited ITA No. : 101/PAN/2018 AY : 2010-2011
2. The prime controversy in the present appeals as to whether onetime prepayment for leased line of enduring benefit for a term of three years, can be treated as revenue in nature or deferred revenue or qualifies for depreciation u/s 32 of the Act being a capital in nature.
3. In advancing the matter for adjudication, it is essential to reproduce grounds defied by the appellant as under;
"1. In the facts and circumstance of the case the Assessing officer erred in considering the expenditure or Rs.14,51,649/- incurred by the appellant company on implementation of MPLS/VPN and lease line connectivity as deferred revenue expenditure to be written off over a period of three years and the Commissioner of Income Tax (Appeals) erred in holding that the appellant company by incurring the said expenditure of Rs.14,51,649/- has acquired and intangible assets in the form of right to use to the connectivity and hence the said asset is eligible for depreciation @ he rate of 25% despite the fact that the said expenditure has not brought into existence any asset / advantage of enduring nature.
2. In the facts and circumstance of the case the Commissioner of Income Tax (Appeals) was unjustified in not directing the assessing officer to allow to the appellant company the entire expenditure of Rs. 14,51,649/- incurred by it during the year on implementation of MPLS / VPN and lease line connectivity either u/s 28(1) or u/s 37(1) of I.T. Act as the said revenue expenditure has not brought into existence any asset/advantage of enduring nature.
The appellant craves leaves to add, alter, amend or modify any of the above grounds of the appeal." (Emphasis Supplied) ITAT-Panaji Page 2 of 13 Goa Tourism Development Corporation Limited ITA No. : 101/PAN/2018 AY : 2010-2011
4. Succinctly stated facts of the case are;
4.1 The appellant assessee is a state owned public limited company incorporated under the erstwhile Companies Act, 1956 engaged in the business of tourism & development in the state of Goa. For the AY 2010- 2011, the assessee filed e-return of income [for short "ROI/ITR"] on 15/10/2010 declaring ₹NIL income and deemed total income of ₹51,06,161/- u/s 115JB of the Act. The return was subjected to scrutiny under computer assisted scrutiny scheme [for short "CASS"] by issue of statutory notice dt. 25/08/2011 u/s 143(2) of the Act and on account of disallowance of certain expenditure the total income of by an order u/s 143(3) was determined at ₹56,84,937/- and after allowing the set-off of brought forward losses income was finally assessed to ₹NIL under regular / normal taxation and the assessee is charged to tax on deemed total income of ₹51,06,161/- u/s 115JB of the Act, thus had an effect of reducing the losses to be carried forward to future years to ₹1,09,44,583/- as against the claim of ₹1,66,29,520/- made in ROI filed.
4.2 During the assessment year under consideration, the appellant company entered into an agreement / contract to implement Multiprotocol Label Switching / Virtual private network [for short "MPLS/VPN"] with "M/s Tulip Telecom Limited" for a term of three years commencing from 01/01/2010 and terminating on 31/12/2012 on a onetime contact price of ₹14,51,649/-. The appellant company placing reliance on the decision of Hon'ble Supreme Court in "CIT Vs Gujarat Mineral Development Corporation" reported at 132 ITR 377 treated the entire onetime payment as in the nature of revenue and debited the ITAT-Panaji Page 3 of 13 Goa Tourism Development Corporation Limited ITA No. : 101/PAN/2018 AY : 2010-2011 full amount of expenditure to Profit and Loss Account [for short "P & L A/c"] of the financial year of its payment relevant to AY 2010-2011. The Ld. AO however not appreciating the views of appellant, disallowed an amount of ₹13,30,678/- attributable to unexpired period of 33 months of based on periodic apportioned (₹14,51,649 / 36 months * 33 months), treating it to be a revenue expenditure but pertaining to period outside the previous year and accordingly the assessment was framed.
4.3 During the course of first appellate proceedings, however the Ld. CIT(A), perusing the agreement entered by the appellant with that of "M/s Tulip Telecom Limited," and having regards to "right to connectivity" for a period over three years, concluded the said transaction as acquisition of an intangible asset, accordingly, held as capital assets and allowed depreciation u/s 32 of the Act in the class / block of intangible assets @25%p.a. Since it is used for less than 180 days for the year under consideration, proportionate depreciation @50% of allowable depreciation is resultantly allowed.
4.4 Ld. CIT(A), in appeals before him, overturned all other disallowance / additions carried out by Ld. AO except differing with the views on disallowance of expenditure incurred in relation to MPLS / VPN lease line connectivity and holding it to be of capital in nature.
4.5 Aggrieved with the order of tax authorities below, the appellant assessee is before us with the grounds of appeal assailed at foregoing para 2 herein above.
ITAT-Panaji Page 4 of 13Goa Tourism Development Corporation Limited ITA No. : 101/PAN/2018 AY : 2010-2011
5. During the course of hearing, the learned counsel for the assessee [for short "AR"] took us through the relevant facts of the case vis-à-vis written submissions made before the tax authorities below and main plank of the argument was based on case laws replied in support of ground raised. It is submitted that, the nature of expenditure incurred by the appellant in no manner be treated of enduring nature, hence the persuasion of the lower tax authorities is unacceptable in the light of judicial precedents replied upon. Au contraire, the learned departmental representative [for short "DR"] supported the orders of the tax authority below reiterating the facts that, the prepayment for lease line was for three years and in the light of enduring benefit occurring to the appellant over a period of three years, following matching principle and having regards to mercantile system of accounting deployed by the assessee, same cannot qualify to be an eligible revenue expenditure u/s 37(1) of the Act.
6. After hearing to the rival contentions of both the parties; perused material placed on records and duly considered the facts of the case in the light of settled legal position and the case laws relied upon by the appellant assessee as well the respondent revenue.
7. The vexed question to be answered under this adjudication is whether the nature of expenditure falls within the realm of provision of section 37(1) of the Act, and hence it is of paramount importance to quote relevant text of the provision to arrive at the applicability in the instant case before us;
ITAT-Panaji Page 5 of 13Goa Tourism Development Corporation Limited ITA No. : 101/PAN/2018 AY : 2010-2011 7.1 "Section 37 : General (1) Any expenditure (not being expenditure of the nature described in sections 30 to 36 and not being in the nature of capital expenditure or personal expenses of the assessee), laid out or expended wholly and exclusively for the purposes of the business or profession shall be allowed in computing the income chargeable under the head "Profits and gains of business or profession".
[Explanation.--For the removal of doubts, it is hereby declared that any expenditure 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.] (2) . . . . . . .
(2B) Notwithstanding anything contained in sub-section (1), no allowance shall be made in respect of expenditure incurred by an assessee on advertisement in any souvenir, brochure, tract, pamphlet or the like published by a political party.] (Emphasis Supplied) 7.2 The bare reading of the provision brings out the following attributes, (1) expenditure should not be covered under any heads in section 30 to 36 (2) should not be a capital expenditure (3) should not be a personal expenditure (4) should be incurred for the purpose business or in the course of business (5) should not be disallowed under sub-section 2 of section 37 (6)The expenditure should not be any illegal purpose or violative of any law of the land. The precise objective of Section 37(1) is to allow a claim for any business expenditure incurred by the assessee ITAT-Panaji Page 6 of 13 Goa Tourism Development Corporation Limited ITA No. : 101/PAN/2018 AY : 2010-2011 which is not specifically covered under any of section 30 to 36. Thus, lex lata serves as residuary permitting to claim any expenditure incurred subject to conditions laid therein. Nisi, the expenditure qualifies any of negative test, or disqualifies any of the positive test laid therein, such expenditure shall be extra-territorial for the claim u/s 37(1).
7.3 In the light of aforestated discussion, in the instant case, the expenditure incurred by the assessee, if qualifies all positive test and distants from negative test, thus cadit quaestio the nature of expenditure.
8. In nut-shell, first part of the test shall answer between capital to revenue, whereas second part shall answer between revenue and deferred revenue;
8.1 One of the tests to determine whether the expenditure in question is revenue expenditure or a capital expenditure is to ascertain, as to whether it had the effect of bringing in an advantage of an enduring benefit, but it does not mean permanent benefit but, at the same time, it certainly cannot be a short-term advantage and needs to last for a substantially long period, before it can qualify to be an advantage of an enduring nature. Moreover, even if an advantage brings about an enduring benefit that per se would not be determinative in every case, because in certain cases even a revenue expenditure may bring about an advantage of an enduring nature to the assessee. As observed by Hon'ble Supreme Court in "Empire Jute Company Ltd Vs CIT"
reported in 124 ITR 1, what is important to see is as to whether the ITAT-Panaji Page 7 of 13 Goa Tourism Development Corporation Limited ITA No. : 101/PAN/2018 AY : 2010-2011 advantage which occurred to the assessee, was in the capital field or in the field of revenue. The whole matter has to be examined from the point of view of a prudent businessman, applying a commercial sense and taking business necessity and expediency into consideration, if the expenditure incurred by the assessee is so intrinsically connected to the conduct of his business as to become an essential component of his profit making process and is not incurred for acquisition of an asset or right of a permanent nature, the expenditure should ordinarily be regarded as revenue expenditure.
8.2 The Hon'ble Supreme Court in the case of "Empire Jute Company Ltd Vs CIT" (Supra) referred to the following test laid down by Lord Cave (LC) in "Atherton Vs British Insulated and Helsby Cables Ltd" [1925] 10 TC 115 as;
"When an expenditure is made, not only once and for all, but with a view to bringing into existence an asset or an advantage for the enduring benefit of a trade, I think that there is very good reason (in the absence of special circumstances leading to an opposite conclusion) for treating such an expenditure as properly attributable not to revenue but to capital."
(Emphasis Supplied) 8.3 The Hon'ble Lordship also referred to the following observations made by Lord Radcliffe in "Commissioner of Taxes Vs Nchanga Consolidated Copper Mines Ltd." (58 ITR 241);
"There may be cases where expenditure, even if incurred for obtaining advantage of enduring benefit, may, none the less, be on revenue account and the test of enduring benefit may break ITAT-Panaji Page 8 of 13 Goa Tourism Development Corporation Limited ITA No. : 101/PAN/2018 AY : 2010-2011 down. It is not every advantage of enduring nature acquired by an assessee that brings the case within the principle laid down in this test, what is material to consider is the nature of the advantage in a commercial sense and it is only where the advantage is in the capital field that the expenditure would be disallowable on an application of this test, per contra, if the advantage consists merely in facilitating the assessee's trading operations or enabling the management and conduct of the assessee's business to be carried on more efficiently or more profitably while leaving the fixed capital untouched, the expenditure would be on revenue account, even though the advantage may endure for an indefinite future. The test of enduring benefit is, therefore, not a certain or conclusive test and it cannot be applied blindly and mechanically without regard to the particular facts and circumstances of a given case."
(Emphasis Supplied) 8.4 The Hon'ble Court also referred to the following observations made in "Hallstorm's Property Ltd. Vs FCT" (72 CLR 634);
"What is an outgoing of capital and what is an outgoing on account of revenue depends on what the expenditure is calculated to effect from a practical and business point of view rather than upon the juristic classification of the legal rights, if any, secured, employed or exhausted in the process. The question must be viewed in the larger context of business necessity or expediency, and if the outgoing expenditure is so related to the carrying on or the conduct of the business that it may be regarded as an integral part of the profit-earning process and not for acquisition of an asset or a right of a permanent ITAT-Panaji Page 9 of 13 Goa Tourism Development Corporation Limited ITA No. : 101/PAN/2018 AY : 2010-2011 character, the possession of which is a condition of the carrying on of the business, the expenditure may be regarded as revenue expenditure." (Emphasis Supplied) 8.5 On a similar occasion the Hon'ble Apex Court while adjudicating the matter of enduring benefit in the case of "CIT Vs Madras Auto Service (P) Ltd" reported 233 ITR 468 at summarised the law laid in "Assam Bengal Cement Co Ltd Vs CIT" (relevant para 2) "2. Expenditure may be treated as properly attributable to capital when it is made not only once and for all, but with a view to bringing into existence an asset or an advantage for the enduring benefit of a trade. If what is got rid of by a lump sum payment is an annual business expense chargeable against revenue, the lump sum payment should equally be regarded as a business expense, but if the lump sum payment brings in a capital asset, then that puts the business on another footing altogether."
(Emphasis Supplied) 8.6 Nota bene, in the instant case, although onetime payment for a right to connectivity is obtained or subscribed ensuring enduring benefit for a period of three years, however the advantage occurs to the appellant in the revenue field as an essential component of his profit making operations and not in capital filed of acquisition of any tangible or intangible asset of a permanent nature. Consequently, we are of considered view that, said expenditure in the light of judicial precedents, is of revenue in nature, consequently we do not concur with the view of Ld. CIT(A) in holding it capital in nature.
ITAT-Panaji Page 10 of 13Goa Tourism Development Corporation Limited ITA No. : 101/PAN/2018 AY : 2010-2011
9. Apropos, having decided the expenditure incurred is in the nature of revenue, as it satisfied all the positive tests as well distanced from all the negative tests laid in section 37(1), de-facto it qualifies for deduction, however the Ld. AO disallowed the portion of such expenditure not pertaining to the previous year but for unexpired period of benefit. It is apt to quote here that, in a similar facts and circumstance, the Hon'ble High Court of Delhi in the case of "CIT Vs Saw pipes Limited" reported at 300 ITR 35, the assessee had paid about Rs. 52 lac for laying of service line to Maharashtra State Electricity Board (MSEB), wherein the Lordships have held that the expenditure incurred by the assessee was a revenue expenditure in the absence of acquisition of any asset of capital, irrespective of the period of enjoyment. And as regards the relevance of accounting method followed by the assessee, it is observed that the treatment given by the assessee to the impugned expenditure as revenue expenditure cannot be considered as different from the one followed for the purpose of computing the total income under the IT Act. In any case, as held by the Hon'ble Supreme Court, in the case of "Kedarnath Jute Manufacturing Co. Ltd. Vs CIT" reported in 82 ITR 363 (SC), the allowability of a particular deduction depends on the provisions of law relating thereto and not on the basis of entries made in the books of account, which are not decisive or conclusive in this regard.
10. Applying the aforesaid principle to the facts of this case, it clearly emerges that the expenditure in the nature of subscription of lease line on onetime payment for three year is of revenue in nature and allowable fully in the year in which it was incurred. Concededly, there is no advantage ITAT-Panaji Page 11 of 13 Goa Tourism Development Corporation Limited ITA No. : 101/PAN/2018 AY : 2010-2011 which has accrued to the assessee in the capital field, au contraire, the expenditure was incurred to facilitate the assessee's operations and no fixed tangible asset vis-à-vis intangible assets is created by this expenditure. We may also add here that in the Income Tax laws, there is no concept of deferred revenue expenditure, therefore once the assessee claims the deduction for whole amount of such expenditure, even in the year in which it is incurred, and expenditure if fulfils the test laid down u/s 37 of the Act, it has to be allowed. The only in exceptional cases, the nature mentioned in Madras Industrial Corporation (supra), the expenditure can be allowed to be spread over, that too, when the assessee chooses to do so. Ergo, we hold that both the tax authorities below erred in disallowing the revenue expenditure incurred by the appellant, and is hereby overturned the same for the aforestated reasons.
11. Resultantly, the appeal of the assessee is allowed in terms of aforestated observation.
Order pronounced in open court on this Wednesday 20th day of April, 2022.
-S/d- -S/d
RAVISH SOOD JAMLAPPA D BATTULL
JUDICIAL MEMBER ACCOUNTANT MEMBER
रायपरु / Raipur; दिनाकां / Dated : 20th day of April, 2022 ITAT-Panaji Page 12 of 13 Goa Tourism Development Corporation Limited ITA No. : 101/PAN/2018 AY : 2010-2011 आदेश की प्रधिधलधप अग्रेधर्ि / Copy of the Order forwarded to :
1. अपीलार्थी / The Appellant.
2. प्रत्यर्थी / The Respondent.
3. The Pr. CIT, Panaji (Goa)
4. The CIT(A), Panaji (Goa)
5. दवभागीय प्रदतदनदि, आयकर अपीलीय न्यायादिकरण, पणजी / DR, ITAT, Panaji Bench, Panaji.
6. गार्डफ़ाइल / Guard File.
आिेशानुसार / BY ORDER, दनजीसदिव / Private Secretary आयकर अपीलीय न्यायादिकरण, पणजी / ITAT, Panaji (Goa) ITAT-Panaji Page 13 of 13