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1 - 5 of 5 (0.59 seconds)Empire Jute Co. Ltd vs Commissioner Of Income Tax on 9 May, 1980
There may be cases where expenditure even if incurred for obtaining an advantage of enduring benefit, may, nonetheless, be on revenue account and the test of enduring benefit may break 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 nature of the principle laid down in this test. What is material to consider is 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. 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 of revenue account, even though the advantage may endure for an indefinite future.
E.I.D. Parry (India) Ltd. vs Dy. Commissioner Of Income-Tax on 29 January, 1993
The learned Departmental Representative, however, sought to place reliance on the decision of Hon'ble Madras High Court in the case of EID Parry (I) Ltd. v. CIT . We have perused the said decision. The said decision does not help the case of the Revenue. The specific finding in the aforesaid decision is that the expenses were in connection with a new project. Such are not the facts in the present case. The business of the assessee has already commenced and, therefore, the aforesaid decision is of not any use to the case pleaded by the Revenue. As far as the treatment in the books of account of the assessee are concerned, the same is not conclusive. The reason for making the addition by the AO as capital expenditure was mainly for the reason that the assessee had treated the same as 'deferred revenue expenditure' in its books of account and according to the AO the said expenditure incurred on advertisement would result in benefits which will accrue to the assessee over a period of time beyond the previous year. So far as the treatment given by the assessee-company in its books of account in respect of the said expenditure is concerned, it is pertinent to ascertain as to whether such expenditure has been treated by the assessee as capital expenditure in its books of account. In this regard, we find that the assessee has treated the said expenditure as 'deferred revenue expenditure' considering the advantage of enduring nature accrued to it which was going to last for a few years beyond the previous year. The AO, however, considered this treatment given by the assessee to resemble with the capital expenditure specifically considering that it indicated the accrual of advantage to the assessee of enduring nature. Before we consider the relevance of the test of enduring benefits for ascertaining the nature of expenditure, it would be appropriate to find out the meaning and nature of the term 'deferred revenue expenditure'. The ICAI in its guidance note issued on the 'terms used in financial statements' has defined the term 'deferred revenue expenditure' as the expenditure for which payment has been made or liability has been incurred in a particular year, but which is carried forward on the presumption that it will benefit over a subsequent period or periods. The ICMA defined the said term in its publication as an expenditure incurred during an accounting period but not fully charged against income in that period, the balance being carried forward and charged in the next or a subsequent period. From the perusal of these definitions, it is abundantly clear that there is nothing to indicate that the concerned expenditure has to be of capital nature for the purpose of treating the same as deferred revenue expenditure. On the contrary, although the said expenditure results into a benefit which accrues to the assessee over a period exceeding the accounting year, such benefit does not accrue to the assessee in the capital field but the same accrues only in the revenue field. As a matter of fact, the very purpose of categorising certain expenditure differently under the head 'deferred revenue expenditure' for the purpose of drawing financial statements appears to be that the said expenditure even though is of revenue nature results into benefit of enduring nature to the assessee and the same, therefore, deserves a different treatment in terms of preparation of the annual accounts to determine, inter alia, the profit of a particular period/year as the benefit "thereof accrues over a period exceeding the accounting year in which the same is incurred. It is thus clear that when any expenditure is treated as a 'deferred revenue expenditure', it presupposes that the concerned expenditure, creating benefit, in the revenue field, is a revenue expenditure but considering its enduring benefits as well as the fact that it does not result in the creation of any new asset or advantage of enduring nature in the capital field, the same is required to be treated distinctly from capital expenditure. It is thus clear that the AO misconstrued the term 'deferred revenue expenditure' as capital expenditure on the basis of accounting treatment given by the assessee in its books of account and proceeded to draw an adverse inference without considering the nature of the impugned expenditure and its allowability of the same under the provisions of the IT Act.
Kedarnath Jute Manufacturing Co. Ltd. vs Commissioner Of Income-Tax (Central) on 24 August, 1966
In any case, as held by the Supreme Court in the case of Kedarnath Jute Manufacturing Co. Ltd. v. CIT , 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. The expenditure in question was incurred towards launching of a new product and was revenue in nature. The action of the AO in treating the same as capital expenditure and disallowing the claim for deduction was not proper.
M/S Madras Industrial ... vs The Commissioner Of Income Tax,Tamil ... on 4 April, 1997
It is pertinent to note certain distinguishing features in the present case. Firstly, the assessee in the present case has claimed the entire expenditure as a revenue expenditure in the year in which it was incurred whereas the assessee in the case before the Hon'ble Supreme Court has claimed deduction in the return of income at only a proportionate part of the expenditure. Secondly, the Hon'ble Supreme Court felt that in the case of discount on debentures such a treatment would be justifiable. Thirdly, the Hon'ble Supreme Court has not laid down only fetters on the right of an assessee to claim the expenditure in one lump sum in the year in which the expenditure was incurred. We are, therefore, of the view that the said decision will not be of any assistance to the case pleaded by the Revenue.
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