COMMISSIONER OF INCOME TAX V. JUPITER CORPORATE SERVICES LTD

TAX APPEAL No. 301 of 2010

AI Insights

The case revolves around the appeal by the Commissioner of Income Tax challenging the decisions of the CIT (A) and the Tribunal, which had deleted certain disallowances made by the Assessing Officer. The primary issues were whether the expenditures incurred by Jupiter Corporate Services Ltd. were capital in nature and whether the interest paid on certain advances was disallowable. The Tribunal and CIT (A) had both found that the expenditures were revenue in nature, as they were incurred for the development of a website that did not vest ownership with the assessee, and the interest payments were not made from interest-bearing funds of the assessee. The High Court, referencing decisions from the Supreme Court, upheld these findings and dismissed the appeal.

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 368934 (HC-GUJARAT)
• Appeal Type: High Court cases
• Pronouncement Date: 05-07-2011
• Appeal Filed By: Department
• Other Referred Cases: Commissioner of Income-Tax V/s. Madras Auto Service (P) Ltd, Atherton V/s. British Insulated and Helosby Cables Ltd, S.A. Builders V/s. Commissioner of Income-Tax and Another
• Laws Referred To: Income Tax Act
• Result in Favour of: Others
• Court: HIGH COURT
• Assessee Lawyers: MAUNA BHATT
• Keywords: Amalgamation; Capital expenditure; Disallowance; Interest disallowance; Interest free funds; Revenue expenditure; Website development
• Section: 14A

Judgement Text

"TAXAP/301/2010 1/6 ORDER IN THE HIGH COURT OF GUJARAT AT AHMEDABAD TAX APPEAL No. 301 of 2010 ========================================================= COMMISSIONER OF INCOME TAX - Appellant(s) Versus JUPITER CORPORATE SERVICES LTD - Opponent(s) ========================================================= Appearance : MRS MAUNA M BHATT for Appellant(s) : 1, None for Opponent(s) : 1, ========================================================= CORAM : HONOURABLE MR.JUSTICE AKIL KURESHI and HONOURABLE MS JUSTICE SONIA GOKANI Date : 05/07/2011 ORAL ORDER (Per : HONOURABLE MR.JUSTICE AKIL KURESHI) 1. Revenue has filed this appeal challenging the judgment of the Tribunal dated 24.7.2009. Following questions have been presented for our consideration: (A) “Whether on the facts and in the circumstances of the case, the Appellate Tribunal was justified in law in deleting the disallowance of Rs.38,47,941/- made by the Assessing Officer by treating such expenditure as a capital expenditure on the ground that such expenditure was incurred for acquiring a right of enduring nature?” (B) “Whether on the facts and in the circumstances of the case, the Appellate Tribunal was justified in law in deleting the disallowance of Rs.83,42,846/- made by the Assessing Officer?” (C) “Whether on the facts and in the circumstances of the case, the Appellate Downloaded on : Thu Jun 05 13:38:45 IST 2025 Uploaded by ASHISH M. GADHIYA(HC00209) on Mon Jul 11 2011 2011:GUJHC:17131-DB NEUTRAL CITATION TAXAP/301/2010 2/6 ORDER Tribunal was justified in law in deleting the addition made by the Assessing Officer by way of disallowance of interest under Section 14A of the Act disregarding the fact that the assessee failed to substantiate that only interest free funds had been used for making investment in shares/mutual funds?” 2. We have perused the orders on record with the assistance of learned counsel for the revenue. 3. With respect to Question No.1, we find that the CIT (A) as well as the Tribunal both concurrently held that expenditure cannot be said to have been capital in nature. CIT (A) discussed the factual aspects of such expenditure and noted that the expenditure pertained to development of website. Such website was to vest in Vishva Gujarati Samaj (VGS for short) and the assessee-company was entitled to only earn 70% of the revenue collected for which various expenditure were incurred such as travelling expenditure, advertisement and other miscellaneous expenditure for promoting membership for the purpose of earning for the revenue, consultancy charges and also paid to various persons who had been engaged to develop the website. Promotional expenditure and other similar charges were also incurred. CIT (A), therefore observed, that such expenditure cannot be considered as capital in nature. Ownership of the website never vested in the assessee and expenditure was incurred for the purpose of earning revenue for members which are enrolled as a result thereof incurring of such expenditure cannot be said to be for gaining enduring benefits. When the issue was carried in Downloaded on : Thu Jun 05 13:38:45 IST 2025 Uploaded by ASHISH M. GADHIYA(HC00209) on Mon Jul 11 2011 2011:GUJHC:17131-DB NEUTRAL CITATION TAXAP/301/2010 3/6 ORDER appeal, the Tribunal concurred with the view of the Assessing Officer. After referring to decision of the Apex Court in the case of Commissioner of Income-Tax V/s. Madras Auto Service (P) Ltd.reported in 233 ITR 468 and the Tribunal was, therefore, of the opinion that expenditure was revenue in nature. Whether the expenditure incurred by an assessee in the course of business is revenue expenditure or capital expenditure is always a question to be judged on the basis of facts on record and judicial pronouncements governing the subject. To judge the nature of expenses, certain parameters have been laid down in the decision in case of Madras Auto Service (P) Ltd. (supra), the Apex Court referred to and followed the decision in the case of Atherton V/s. British Insulated and Helosby Cables Ltd. reported in (1925) 10 TC 155 (HL), which provided as under: “1. Outlay is deemed to be capital when it is made for the initiation of a business, for extension of a business, or for a substantial replacement of equipment. 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. Downloaded on : Thu Jun 05 13:38:45 IST 2025 Uploaded by ASHISH M. GADHIYA(HC00209) on Mon Jul 11 2011 2011:GUJHC:17131-DB NEUTRAL CITATION TAXAP/301/2010 4/6 ORDER 3. Whether for the purpose of the expenditure, any capital was withdrawn, or, in other words, whether the object of incurring the expenditure was to employ what was taken in as capital of the business. Again, it is to be seen whether the expenditure incurred was part of the fixed capital of the business or part of its circulating capital.” (underlining ours) In the present case, the Authorities, namely, CIT (A) as well as Tribunal had found that the ownership of the website had been vested on the assessee. That the expenditure was incurred for development of such website and other incidental expenses such as travelling, promotional expenses, etc., which were revenue in nature particularly since website did not belong to the assessee. We do not find any error in the view of the Tribunal, no question of law arises. 4. With respect to Question No.2, we find that the Tribunal relying upon decision of Supreme Court in case of S.A.Builders V/s. Commissioner of Incoome- Tax and Another reported in 288 ITR 1 held that interest paid by the assessee cannot be disallowed as expenditure. The facts can be gathered from the Tribunal's order. One M/s. Jupiter Infosoft Ltd. has given a sum of Rs.2.5 Crores for acquiring premises of Sakar-II building for business purpose. This advance was made when there was no amalgamation of the said company with the assessee-company. After amalgamation, though, initial claim for depreciation was made, subsequently, the assessee had rectified Downloaded on : Thu Jun 05 13:38:45 IST 2025 Uploaded by ASHISH M. GADHIYA(HC00209) on Mon Jul 11 2011 2011:GUJHC:17131-DB NEUTRAL CITATION TAXAP/301/2010 5/6 ORDER the position by filing revised return. The Assessing Officer, however, did not grant the expenditure on the belief that the Company had made advances to one of the Directors of the Company by camouflaging. The Assessing Officer held that the company had paid huge interest of Rs.83,42,846/- for borrowing such funds. The Assessing Officer, therefore, disallowed the interest paid. CIT (A) reversed the order of the Assessing Officer. Tribunal upheld the order of the CIT(A) observing that even though the re- classification from assets to loans and advances may not be free from doubt but the fact that investment into the property was out of interest from funds being the share capital raised by the earlier company and therefore, disallowing interest paid by the assessee-company does not arise. Tribunal observed that there was neither any evidence nor any suspicion that interest bearing funds of the present company were invested in the interest free advances to the Directors. Further, that the amalgamation of the earlier company with present Company is clearly a business deal. On these facts, relying on the decision of the Apex Court in case of S.A. Builders Ltd. V/s. CIT reported in (2007) 288 ITR 01 (SC), Tribunal ruled in favour of the assessee. We find that entire issue is based on facts. Tribunal had come to the conclusion that no interest bearing funds of the assessee-company were diverted for making interest free loans to the Director. In- fact, previously, same was paid by the amalgamating company before amalgamation for purchase of business premises. There was no evidence that any funds of Downloaded on : Thu Jun 05 13:38:45 IST 2025 Uploaded by ASHISH M. GADHIYA(HC00209) on Mon Jul 11 2011 2011:GUJHC:17131-DB NEUTRAL CITATION TAXAP/301/2010 6/6 ORDER the assessee-company carrying interest liability was diverted for making interest free loans to the Directors. Under the circumstances, we do not find that any question of law arises. 5. With respect to Question No.3, the Assessing Officer disallowed the expenditure referring to Section 14(A) of the Act. However, CIT (A) found that assessee had sufficient interest free funds and therefore, investment into share business amounting to Rs.3.5 Crores was out of such interest free funds. Tribunal approved the view of the CIT (A). In short, CIT (A) as well as Tribunal both disapproved the Assessing Officer's stand. Here also, entire issue is based on facts. Two Authorities concurrently found that more than sufficient funds were available with the assessee. Small portion thereof was invested in earning tax free income. Under the circumstances, we do not find that any question of law arises. 6. Tax Appeal is, therefore, dismissed. (Akil Kureshi, J.) (Ms.Sonia Gokani, J.) (ashish) Downloaded on : Thu Jun 05 13:38:45 IST 2025 Uploaded by ASHISH M. GADHIYA(HC00209) on Mon Jul 11 2011 2011:GUJHC:17131-DB NEUTRAL CITATION "