TMI Blog2009 (12) TMI 912X X X X Extracts X X X X X X X X Extracts X X X X ..... so as to be classified in capital field. It is meant to be utilized in the event of accident/occurring of any fire as a preventive measure. 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. 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 effectively 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. Examining the present issue on the touchstone of above exposition, we do not see any reason why the expenditure should not be allowed as revenue expenditure - Decide the issue in favour of the assessee. Expenditure for club services - CIT(A) upholding that the expenditure for club services as expenditure not for the purpose of business but is of personal nature - HELD THAT:- As we are of the opinion that use of club services for the promotion of business in the modern age cann ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... isputed either to nature of services rendered by agents or how the liability to pay the commission is computed. It has also not disputed that how the brokerage is payable and is linked to what. The only case made out by the revenue is that expenditure should be spread over a certain period of time. In our opinion, there is no cogency in the case made out by the revenue. It is an accepted position that assessee s treatment in its accounts books is not determinative of the actual nature of the transaction. It is also admitted that there is nexus between the expenditure and the assessee s business. Under such circumstances, there is no reason why the expenditure incurred would not be allowed as a whole. Thus we find that expenditure which have been made in the concerned years were paid to the selling agents for sourcing the customers from whom the assessee had generated the income by way of granting of loan finances. The amount paid as commission is not refundable in any circumstances. Undisputedly income in this regard has been accounted for in the current years also - we find that the expenditures on commission and stamping fee have to be allowed in full in the impugned assessmen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at the ld. CIT(A) erred in confirming the disallowance of expenditure on acquisition of fire extinguishers upholding that the expenditure was capital in nature. 7. On this issue the assessee expenditure on fire extinguishers which was debited as revenue expense was disallowed by the AO, who held them to be capital in nature. 8. Upon assessee s appeal the ld. CIT(A) confirmed the same. The ld. CIT(A held that the fire extinguisher is not an item which was consumed in the day to day business of the working of the company. It, therefore, can be said to be expenditure made, which is of lasting value and hence he confirmed the AO s action. 9. Against this order the assessee is in appeal before us. 10. Ld. Counsel of the assessee contended that these are revenue expenditure and in this regard he referred to the Hon ble Apex Court decision in the cases of M/s Empire Jute Co. Ltd. Vs. CIT 124 ITR 1. He claimed that by incurring expenditure on fire extinguisher, assessee has not obtained any asset or advantage of enduring nature. Ld. Counsel alternatively contended that if these fire extinguishers have to be treated as capital expenditure assessee s claim of depreciation may kin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e extent of 50%. 15. Against this order the assessee is in appeal before us. 16. We have heard both the counsels and perused the records. In assessment year 2002-03 ld. CIT(A) has stated that these expenditures are not all in the nature of subscription fees to clubs. Furthermore, the ld. CIT(A) observed that these expenditures have been made for purchase and entertainment, in which the element of expenditure for personal though cannot be demarcated, but nonetheless it does exist. Upon careful consideration, we are of the opinion that use of club services for the promotion of business in the modern age cannot be denied. Further the expenditure in comparison with the turnover of the assessee is a very miniscule amount. For assessment year 2002-03 ld. CIT(A) himself deleted the half of the disallowance. Furthermore the proposition that these expenditure incurred by the assessee company are personal in nature is not sustainable on the anvil of Hon ble Gujrat High Court decision in the case of Sayaji Iron Engg and Company Vs. CIT 253 ITR 749. In this case it was held that when the vehicles belonging to assessee company are used by its directors for personal or other purposes ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s applicable. He submitted that section 35D deals with the amortization of preliminary expenses which are incurred before the commencement of business or after the commencement of business in connection with extension of the undertaking or in connection with setting up of new unit. He claimed that the advertisement expenditures incurred by the assessee are not at all preliminary expenses as envisaged under section 35D of the IT Act. Ld. Counsel contended that these expenditures have actually been incurred for the purpose of business of the assessee. He argued that there is no reason why these expenditures should not be allowed in full. He argued that there is no concept of deferred revenue expenditure in tax laws. In this regard, the ld. Counsel referred the decision of the Hon ble Delhi High court in the case of CIT Vs. Salora International ltd. 308 ITR 199. In this case, fact were that for assessment year 2001-02 the assessee had incurred advertisement expenditure of ₹ 3.08 crores for launching of its products and the AO held that expenditure was of an enduring nature and treated 1/3rd of it as capital expenditure. The Tribunal, confirming the findings of the CIT(A) that th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... depreciation. The Tribunal allowed the expenses claimed to the extent of ₹ 11,93,263/- under section 35D disallowing warehousing and other handling charges and depreciation 24.1 The Hon ble High Court inter-alia held as under:- (i) that the expenditure incurred on publicity and promotional expenses amounting to ₹ 35,55,769 during the years 1967-68, 1968- 69 and 1969-70 prior to March 31, 1970 were not deductible in the assessment year 1972-73; (ii) that the expenditure incurred on publicity and promotional expenses amounting to ₹ 33,55,769/- during the years 1967-68, 1968-69 and 1969-70 prior to March 31, 1970, were revenue in nature and not capital in nature and could not be considered to be part of the actual cost; (iii) that the Tribunal was justified in law in holding that a sum of ₹ 11,93,263 incurred by the assessee by way of advertisement expenses, and by way of subsidy to farmers field extension programme, farmer dealer meeting, etc., and soil test expenses should be allowed as admissible deductions under section 35D. The Tribunal rightly came to the conclusion that on warehouse and other handling charges and depreciation no deduction ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... payable is linked to hire charges which are receivable over period of hire purchase finance, the brokerage will also be allowed accordingly. However, if it is otherwise, the same will be allowed in the year of payment itself. Hence the ld. DR submitted that the same order should be followed as the issue stands covered. 29. Ld. Counsel of the assessee on the other hand submitted that this order is not applicable on the facts of the case for the impugned year. He mentioned that in that year i.e. A.Y. 1998-99 on the basis of the case made out by the AO, Tribunal had remitted the matter observing that whether there was some nexus between the disbursement of loan and the commission paid was not clear. In this regard, ld. counsel referred to assessment order and CIT(A) s Order for assessment year 1998-99. Ld. counsel submitted that in the year 1998-99 asesssee had incurred expenditure of ₹ 52,70,636/- and debited its profit and loss account by a sum of ₹ 4,32,000/- and remaining sum of ₹ 48,38,636/- for the purpose of account was treated as deferred revenue expenditure. However, while furnishing the return of income assessee had claimed deduction of the entire amoun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r to any period, as the expenditure was incurred for procuring the business and sum was paid to the agents and represented the liability of assessee as soon as the agents procured the business which is also non-refundable by the agents. In this regard, ld. counsel further submitted that in the immediate preceding year to the assessment year under appeal i.e. assessment year 1999-00 and 2000-01 the assessee had claimed the entire expenditure as incurred in respect of direct selling expenditure being commission paid to the direct selling agents and the same was not disallowed by the AO. Hence he further submitted that so far as the assessment year thereafter are concerned, it had to be decided independently, on merits of the case for each of the assessment year. Ld. counsel contended that during the current assessment year AO had made elaborate enquiries and assessee had provided and exhaustive details. In this regard, ld. counsel referred to assessee s submission filed with the AO wherein the nature of this expenditure had been duly explained vide letter dated 09.3.2004. In the said submission assessee has explained inter-alia the following :- During the year under considerat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the period of loan as revenue expenditure and relied on the judgement of Hon ble Supreme Court in the case of Madras Industrial Corp. Vs. CIT reported in 225 ITR 802. The said judgement relates to allowability of deduction on account discount on issue of debentures; i.e.; borrowings. Whereas the facts of the assessee s case are that commission is paid to DSAs for sourcing the hirers. Once the sales commission is paid, it is not refundable even if the finance contract is terminated latter on or repaid prematurely or no recoveries are made subsequently. Hence, commission paid to agents is revenue expenditure and duly allowable for income tax purposes. Thus Ld. Counsel of the assessee contended that during the current year A.Y. 2001-02. AO has duly examined the entire issue and found that the receipt in these years does not have any link with the period of disbursement of loan in that year. Ld. counsel reiterated that the commission expenses have actually been incurred during the impugned financial year and were therefore allowable in the year. Hence, the ld. Counsel claimed that assessment for assessment year 1998-99 has no applicability on the facts in the present case. He menti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... impugned financial years. The commission become due and payable to the agents as soon as the business is procured by them. Under no circumstances, the amount is liable to be returned to the assessee. It is also evident from the documents regarding AO s enquiry and assessee s response that AO has duly examined the aspect and found that in the current period the amount paid as commission is not at all linked with the loan disbursement during the year. It is also evident that amount paid as commission in a particular year can in not way be claimed as refund by the assessee under any circumstances, even if the amount financed is forfeited. We also find form the orders of the authorities below and in the written submission filed by the assessee before them that neither of the authorities below have disputed either to nature of services rendered by agents or how the liability to pay the commission is computed. It has also not disputed that how the brokerage is payable and is linked to what. The only case made out by the revenue is that expenditure should be spread over a certain period of time. In our opinion, there is no cogency in the case made out by the revenue. It is an accepted po ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... abad included the factory premises within the limits of Shahabad Municipality. A tripartite agreement was entered into between the government, the municipality and the respondent company, whereby the company undertook (i) to supply water to the municipality and provide water pipelines, (ii) to supply electricity for street lighting in the municipality and put up a transmission line therefor, and (iii) to concrete the main road from the factory to the railway station. In return, the respondent was not liable to pay municipal rates and taxes for a period of 15 years. During the previous year relevant to the assessment year 1959-60, the respondent spent a sum of ₹ 2,09,459/- towards installing water pipelines and accessories outside the factory premises which were to belong to and be maintained by the municipality. Since it was not disputed that the entire expenditure concerned installations and accessories which came to the ownership of the municipality, the High court, on a reference held that the expenditure was revenue in nature and deductible in computing the profits of the company. The Hon ble Apex Court upon consideration referred to the decision of the Apex Court in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o the selling agents for sourcing the customers from whom the assessee had generated the income by way of granting of loan finances. The amount paid as commission is not refundable in any circumstances. Undisputedly income in this regard has been accounted for in the current years also. Under such circumstances, examining the present issue on the anvil of Hon ble Jurisdictional High Court decision and Hon ble Apex Court decision cited above, we find that the expenditures on commission and stamping fee have to be allowed in full in the impugned assessment years as deferral of the same over a number of year is not sustainable. Under such circumstances, we set aside the orders of the ld. CIT(A) and decide the issue in favour of the assessee. Revenue s appeal 31. One common issue is raised is that the ld. CIT(A) in directing the AO to allow certain portion of advertisement expenses. We find that in assessee s appeal in para 17 above, we have already adjudicated this issue and we have set aside the orders of both CIT(A) and AO and decided the issue in favour of the assessee by holding that the entire expenditure on advertisement is allowable. Hence, the issue raised by the revenue ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
