Haryana Warehousing Corporation V. Assistant Commissioner of Income Tax

ITA/317/2008

AI Insights

The case revolves around the Haryana Warehousing Corporation's appeal against the decision of the Income Tax Appellate Tribunal, which upheld the Commissioner of Income Tax (Appeals)'s ruling that the expenditure on Information & Technology training was capital in nature and not allowable as a deduction. The Corporation argued that the expenditure was necessary for modernizing its operations and was connected with its business activities, thus should be deductible under Section 37 of the Income Tax Act. The High Court, referencing previous judgments, concluded that the expenditure was revenue in nature and allowed the appeal.

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 812641 (HC-CHANDIGARH)
• Appeal Type: Others
• Pronouncement Date: 20-04-2011
• Assessment Year: misc
• Other Referred Cases: Commissioner of Income-Tax v. Varinder Agro Chemicals Limited [2009] 309 ITR 272 (P&H), The Chief Commissioner of Income-Tax (OSD), Faridabad v. M/s O.K. Play India Ltd. (ITA No. 414 of 2008) decided on 25.2.2011
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Revenue
• Court: HIGH COURT
• Department Lawyers: YOGESH PUTNEY
• Assessee Lawyers: RAJESH GARG
• Keywords: Business expenditure; Capital expenditure; Commercial expediency; Revenue expenditure; Information Technology training
• Section: 37; 10(29)

Judgement Text

"ITA No. 317 of 2008 -1- IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH ITA No. 317 of 2008 Date of Decision: 20.4.2011 Haryana Warehousing Corporation ....Appellant. Versus Assistant Commissioner of Income Tax ...Respondent. CORAM:- HON'BLE MR. JUSTICE ADARSH KUMAR GOEL. HON'BLE MR. JUSTICE AJAY KUMAR MITTAL. PRESENT: Mr. Rajesh Garg, Advocate for the appellant. Mr. Yogesh Putney, Senior Standing Counsel, for the respondent. AJAY KUMAR MITTAL, J. 1. This Court on 17.10.2008 admitted the appeal for determination of question No. (iv) which is as under:- “(iv) Whether the Income Tax Appellate Tribunal was right in law in disallowing the expenditure of Rs.1,00,06,000/- incurred on Information & Technology training connected with the business of the Corporation as business expenditure and on the principle of commercial expediency?” 2. Put shortly, the facts necessary for disposal as narrated in the appeal are that the assessee filed its return for the assessment year ITA No. 317 of 2008 -2- 2001-02 on 29.10.2001 declaring nil income claiming the entire income including the income from wheat and paddy trading as agent of the Government and Food Corporation of India (FCI) as exempt under Section 10(29) of the Income Tax Act, 1961 (in short “the Act”). It was further claimed that if it was held that part of income was liable to tax and part was exempt under Section 10(29) of the Act, then entire indivisible expenses had to be deducted from the taxable income. The assessee had also claimed an expenditure of Rs.1,00,06,000/- under the head “Information and Technology” on the ground that the amount was given to the Government of Haryana for development of Information and Technology for constitution of “Information Technology Initiation Fund” for e-governance to promote technology and the employees of the assessee got training at the said centre for modernizing the working of the Corporation. The Assessing Officer vide order dated 12.2.2004 disallowing the claims of the assessee also treated the expenditure on “Information and Technology” not for business expediency and disallowed the same. In appeal filed by the assessee, the Commissioner of Income Tax (Appeals) [hereinafter referred to as ”the CIT(A)”] vide order dated 30.11.2004 allowed the appeal partly. The CIT(A) held that the assessee was entitled to deduction of entire indivisible expenses from taxable income. However, the CIT(A) held the expenditure on “Information and Technology” to be capital expenditure and, thus, not allowable. On further appeal, the Tribunal vide order dated 20.7.2007 upheld the order of the CIT(A) and dismissed the appeal on this issue. Hence, the present appeal by the assessee. ITA No. 317 of 2008 -3- 3. We have heard learned counsel for the parties. 4. Learned counsel for the assessee submitted that the expenditure incurred on information and technology training was connected with the business of the Corporation and there existed commercial expediency and under the provisions of Section 37 of the Act, the same was allowable as deduction. The CIT(A) and the Tribunal had erred in treating the same to be of enduring nature and, thus, treated it to be capital expenditure. Learned counsel for the assessee relied upon the judgments of this Court in Commissioner of Income- Tax v. Varinder Agro Chemicals Limited [2009] 309 ITR 272 (P&H) and The Chief Commissioner of Income-Tax (OSD), Faridabad v. M/s O.K. Play India Ltd. (ITA No. 414 of 2008) decided on 25.2.2011 in support of his submission where the expenses on software development were held to be revenue expenditure. 5. Learned counsel for the revenue, on the other hand, supported the order passed by the Tribunal. 6. After giving our thoughtful consideration to the respective submissions of learned counsel for the parties, we find that the Tribunal was in error in holding that the expenditure on account of information and technology training was not admissible. This Court in Varinder Agro Chemicals Limited's case (supra) considering the expenditure spent on computer software observed that the software which was used by the assessee was not of enduring nature and that the same would become outdated soon. It was further observed that the technology is fast changing and day-by-day systems are being developed in a new way, in which software is required as a raw material. In such a situation ITA No. 317 of 2008 -4- computer software expenses were held to be revenue in nature and deductible as such. Following the aforesaid decision, similar view was taken by this Court in M/s O.K. Play India Ltd's case (supra). Thus, it is held that the said expenditure was directly connected with the business of the assessee and was, therefore, eligible for deduction under Section 37 of the Act on the principle of commercial expediency. 7. Accordingly, the question of law is answered in favour of the assessee and against the revenue. The appeal stands allowed. (AJAY KUMAR MITTAL) JUDGE April 20, 2011 (ADARSH KUMAR GOEL) gbs JUDGE "