Ace Motors P.Ltd, Calicut V. ACIT, Calicut

ITA 270/COCH/2013

• Counselvise Citation: [2014] 120 COUNSELVISE.COM (IT) 7261 (ITAT-COCHIN)
• Duration Of Justice: 1 year(s) 3 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-08-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Next Hearing Date: 17-07-2014
• Assessment Year: 2006-2007
• Appeal Filed On: 07-05-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: LATHA V KUMAR
• Assessee Lawyers: NARAYANAN P POTTY
• Keywords: Capital asset; Depreciation; Business expenditure; Revenue expenditure; Capital expenditure

Judgement Text

1 ITA NO.269-271/COCH/2013 IN THE INCOME TAX APPELLATE TRIBUNAL COCHIN BENCH, COCHIN BEFORE SHRI N.R.S. GANESAN (JM) AND SHRI CHANDRA PO OJARI (AM) I.T.A NO.269 TO 271/COCH/2013 (ASSESSMENT YEARS 2004-05 TO 2007-08) ACE MOTORS PVT LTD VS THE ACIT, CIR.1(1) LEELA TOWERS, KALLAI ROAD CALICUT KOZHIKODE 673 002 PAN : AABCA9440Q (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI NARAYANAN P POTTY RESPONDENT BY : SMT. LATHA V KUMAR, JR DR DATE OF HEARING : 17-07-2014 DATE OF PRONOUNCEMENT : 28-08-2014 O R D E R PER N.R.S. GANESAN (JM) BOTH THE APPEALS OF THE ASSESSEE ARE DIRECTED AGAI NST THE RESPECTIVE ORDERS OF CIT(A), KOZHIKODE FOR THE ASSESSMENT YEAR S 2004-05, 2005-06 AND 2007-08. 2. LET US FIRST TAKE THE ASSESSEES APPEAL FOR THE ASSESSMENT YEAR 2004-05 IN ITA NO.269/COCH/2013. 2 ITA NO.269-271/COCH/2013 3. THE SOLE GROUND ARISES FOR CONSIDERATION IS WITH REGARD TO DISALLOWANCE OF RS.1,79,093 BEING THE REPLACEMENT C HARGES OF HOARDINGS. 4. SHRI NARAYANAN P POTTI, THE LD.REPRESENTATIVE FO R THE ASSESSEE SUBMITTED THAT THE ASSESSEE INCURRED AN EXPENDITURE OF RS.1,79,093 FOR REPLACEMENT OF THE EXISTING HOARDINGS IN THE BUSINE SS PREMISES. THE CLAIM OF THE ASSESSEE WAS DISALLOWED BY THE ASSESSING OFF ICER ON THE GROUND THAT THE SIGNBOARD WHICH WAS REPLACED BY THE ASSESSEE IS A PART OF THE BUILDING, THEREFORE, IT IS A CAPITAL ASSET. THE CIT(A) ALSO CONFIRMED THE DECISION OF THE ASSESSING OFFICER ON THE GROUND THAT THE REPLAC EMENT INDIRECTLY GIVES THE ASSESSEE AN ENDURING BENEFIT. REFERRING TO THE UNREPORTED JUDGMENT OF THE KERALA HIGH COURT IN JOY ALUKAS INDIA PVT LTD V S ACIT I.T.A. NO.230 OF 2013 DATED 20-01-2014, THE COPY OF WHICH IS FILED B Y THE ASSESSEE AND SUBMITTED THAT WHEN THE ASSESSEE INCURRED BUSINESS EXPENDITURE FOR REPLACING THE EXISTING HOARDING IRRESPECTIVE OF THE ENDURING BENEFIT OR ADVANTAGE, ACCORDING TO THE LD.REPRESENTATIVE, IT H AS TO BE ALLOWED AS REVENUE EXPENDITURE. 5. ON THE CONTRARY, SMT. LATHA V KUMAR, THE LD.DR S UBMITTED THAT ADMITTEDLY, THE ASSESSEE REPLACED THE EXISTING HOAR DINGS TO INCLUDE THE BRAND NAME AND INSIGNIA OF HERO HONDA MOTORS LTD. THE EFFECT OF THE HOARDINGS ENHANCES THE BRAND VALUE OF THE ASSESSEE AND THAT WILL BOOST 3 ITA NO.269-271/COCH/2013 THE MARKET. THEREFORE, ACCORDING TO THE LD.REPRESE NTATIVE, THE HOARDING IS A PART OF THE BUILDING AND THE CIT(A) HAS RIGHTLY DIR ECTED THE ASSESSING OFFICER TO TAKE THE EXPENDITURE IN THE WRITTEN DOWN VALUE A ND ALLOW DEPRECIATION. THEREFORE, THE ASSESSEE MAY NOT HAVE ANY GRIEVANCE AT ALL. 6. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS ON EITH ER SIDE AND ALSO PERUSED THE MATERIAL AVAILABLE ON RECORD. ADMITTED LY, THE ASSESSEE INCURRED EXPENDITURE OF RS.1,79,093 TOWARDS REPLACE MENT OF THE EXITING HOARDINGS AS INSISTED BY HERO HONDA MOTORS LTD. TH E QUESTION ARISES FOR CONSIDERATION IS WHETHER THE COST INCURRED BY THE A SSESSEE FOR SUCH REPLACEMENT IS REVENUE EXPENDITURE OR CAPITAL EXPEN DITURE. THE REVENUE AUTHORITIES REJECTED THE CLAIM OF THE ASSESSEE ON T HE GROUND THAT THE HOARDING IS PART OF THE BUILDING, THEREFORE, IT IS CAPITAL EXPENDITURE AND THE ASSESSEE IS ENTITLED ONLY FOR DEPRECIATION. THE KE RALA HIGH COURT IN THE CASE OF JOY ALUKKAS INDIA (P) LTD (SUPRA) HAD AN OC CASION TO CONSIDER AN IDENTICAL ISSUE IN RESPECT OF THE EXPENDITURE INCUR RED BY THE ASSESSEE FOR ESTABLISHMENT OF A NEW SHOW ROOM ON THE LEASE PREMI SES. THE KERALA HIGH COURT FOUND THAT BUSINESS EXPENDITURE IRRESPEC TIVE OF CREATING AN ENDURING BENEFIT OR ADVANTAGE EVEN IF IT IS A PROFI T EARNING EFFORT UNLESS AT THE END OF THE TERM OF LEASE THE ITEMS ON WHICH EXP ENDITURE WAS SPENT COULD BE RETRIEVED BY THE ASSESSEE, IT SHALL NOT AM OUNT TO CAPITAL EXPENDITURE BUT IT CAN BE TERMED ONLY AS REVENUE EX PENDITURE. IN VIEW OF 4 ITA NO.269-271/COCH/2013 THE OBSERVATIONS MADE BY THE KERALA HIGH COURT IN T HE CASE OF JOY ALUKKAS INDIA (P) LTD, THIS TRIBUNAL IS OF THE OPINION THAT THE CLAIM OF THE ASSESSEE FOR REPLACEMENT OF HOARDINGS TO THE EXTENT OF RS.1, 79,093 HAS TO BE TREATED AS REVENUE EXPENDITURE. ACCORDINGLY, THE ORDERS OF LOWER AUTHORITIES ARE SET AIDE AND THE ASSESSING OFFICER IS DIRECTED TO A LLOW THE CLAIM OF THE ASSESSEE AS REVENUE EXPENDITURE. 7. NOW COMING TO APPEAL FOR ASSESSMENT YEAR 2006-07 IN ITA NO.270/COCH/2013, THE FIRST GROUND OF APPEAL IS WIT H REGARD TO ADDITION MADE BY THE ASSESSING OFFICER TO THE EXTENT OF RS.2 ,55,269 TOWARDS PETROL EXPENSES INCURRED BY DIRECTORS. 8. SHRI NARAYANAN P POTTI, THE LD.REPRESENTATIVE FO R THE ASSESSEE SUBMITTED THAT THE COMPANY PAID EXPENSES FOR PETROL FOR THE DIRECTORS. THE DIRECTORS USED THE VEHICLE ONLY FOR BUSINESS PURPOS E. MOREOVER, WHEREVER IT WAS USED FOR THE BENEFIT OF THE DIRECTORS FRINGE BENEFIT TAX WAS ALSO PAID ON THE EXPENDITURE. ACCORDING TO THE LD.REPRESENTA TIVE, WHEN THE ASSESSEE PAID FRINGE BENEFIT TAX ON THE AMOUNT PAID TO THE D IRECTOR AS BENEFIT, THE SAME CANNOT BE SUBJECT MATTER OF TAXATION. THE LD. REPRESENTATIVE SUBMITTED THAT THE EXPENDITURE WAS EVEN OTHERWISE I NCURRED FOR BUSINESS PURPOSE IN THE ORDINARY COURSE OF BUSINESS, THEREFO RE, THERE CANNOT BE ANY QUESTION OF DISALLOWANCE. 5 ITA NO.269-271/COCH/2013 9. ON THE CONTRARY, SMT. LATHA V KUMAR, THE LD.DR S UBMITTED THAT THE PETROL EXPENSES WERE UTILIZED BY THE DIRECTORS FOR PERSONAL PURPOSE. THE ASSESSEE HAS ALSO PAID FRINGE BENEFIT TAX. HOWEVER , MERELY BECAUSE THE FRINGE BENEFIT TAX WAS PAID, IT WILL NOT ABSOLVE TH E ASSESSEE FROM PAYMENT OF TAX ON THE INCOME. 10. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS ON EIT HER SIDE AND ALSO PERUSED THE MATERIAL AVAILABLE ON RECORD. THE ASSE SSEE CLAIMS THAT THE PETROL EXPENSES ARE INCURRED BY THE DIRECTORS FOR T HE PURPOSE OF BUSINESS OF THE ASSESSEE COMPANY. IT IS ALSO AN ADMITTED FA CT THAT THE ASSESSEE PAID FRINGE BENEFIT TAX. THE QUESTION ARISES FOR C ONSIDERATION IS WHEN THE ASSESSEE PAID FRINGE BENEFIT TAX ON THE EXPENDITURE INCURRED ON THE DIRECTOR / EMP[OYEES AND PAID FRINGE BENEFIT TAX, WHETHER TH E SAME AMOUNT HAS TO BE INCLUDED IN THE TOTAL INCOME FOR THE PURPOSE OF TAXATION. FRINGE BENEFIT IS DEFINED IN SECTION 115WB OF THE ACT. THE DEFINI TION CLEARLY SAYS THAT ANY EXPENDITURE INCURRED BY THE ASSESSEE FOR PROVIDING SERVICE / FACILITY TO ITS EMPLOYEES INCLUDING FORMER EMPLOYEES IN THE COURSE OF ITS BUSINESS ACTIVITIES, THEN THE FRINGE BENEFIT HAS TO BE PAID AS PROFIT THEREIN. SECTION 115WKB SAYS THAT WHERE AN EMPLOYER HAS PAID THE FRI NGE BENEFIT TAX IT SHALL BE DEEMED THAT THE FRINGE BENEFIT WAS RECOVER ED AS THE TAX PAID BY THE EMPLOYEE IN RELATION TO THE VALUE OF THE FRINGE BENEFIT PROVIDED TO HIM. 6 ITA NO.269-271/COCH/2013 THE SCHEME OF THE FRINGE BENEFIT TAX CLEARLY SHOWS THAT THE EXPENDITURE IS INCURRED BY THE ASSESSEE FOR BUSINESS PURPOSE IN RE SPECT OF HIS EMPLOYEES AND IT IS TAXABLE IN THE HANDS OF THE RECIPIENT EMP LOYEE. INSTEAD OF RECOVERING THE TAX FROM THE RECIPIENT EMPLOYEE, THE PARLIAMENT INTENDED TO RECOVER THE MONEY FROM THE EMPLOYER BY WAY OF FRING E BENEFIT TAX. THEREFORE, FOR ALL PRACTICAL PURPOSE, THE SERVICE / FACILITIES PROVIDED BY THE EMPLOYER TO THE EMPLOYEE IS FOR BUSINESS PURPOSES A ND IT IS OTHERWISE ALLOWABLE AS BUSINESS EXPENDITURE. SINCE THE VALUE OF THE FRINGE BENEFIT IS TAXABLE IN THE HANDS OF THE RECIPIENT EMPLOYEE, THE EMPLOYER WAS MADE TO PAY THE TAX BY WAY OF FRINGE BENEFIT. THEREFORE, O NCE THE FRINGE BENEFIT TAX IS PAID, THIS TRIBUNAL IS OF THE OPINION THAT THERE IS NO QUESTION OF ANY FURTHER DISALLOWANCE / ADDITION IN RESPECT OF THE S AME AMOUNT, IN VIEW OF THE ABOVE, THE ORDER OF THE LOWER AUTHORITIES ARE S ET ASIDE AND THE ADDITION OF RS. 2,55,269 IS DIRECTED TO BE DELETED. 11. THE NEXT ISSUE IS WITH REGARD TO ADDITION OF RS .21,257 BEING THE SUBSCRIPTION PAID TO THE CLUB ON BEHALF OF THE DIRE CTORS. WE HEARD THE LD.COUNSEL FOR THE ASSESSEE AND THE LD.DR. WHAT WA S CLIMED BY THE ASSESSEE IS ONLY SUBSCRIPTION PAID TO THE CLUB AND NOT THE EXPENDITURE. IT IS WELL SETTLED PRINCIPLES OF LAW THAT THE SUBSCRIPTIO N PAID BY THE ASSESSEE TO BECOME A MEMBER IN THE CLUB WOULD FACILITATE AUGMEN TING THE BUSINESS OF THE ASSESSEE. THEREFORE, IT IS TO BE ALLOWED AS BU SINESS EXPENDITURE. 7 ITA NO.269-271/COCH/2013 THEREFORE, THE ORDERS OF THE LOWER AUTHORITIES ON T HIS ISSUE ARE SET ASIDE AND THE ADDITION OF RS. 21,257 IS DELETED. 12. NOW COMING APPEAL FOR ASSESSMENT YEAR 2007-08 I N ITA NO.271/COCH/2013, THE ONLY ISSUE AGITATED IN THE AP PEAL IS ADDITION OF RS.1,29,822 ON ACCOUNT OF USE OF VEHICLE BY THE DIR ECTORS. THIS ISSUE IS IDENTICAL TO THE FIRST GROUND FOR THE ASSESSMENT YE AR 2006-07 WHICH WE HAVE ALREADY DECIDED IN FAVOUR OF THE ASSESSEE AFTE R AN ELABORATE DISCUSSION. THE FACTS AND CIRCUMSTANCES FOR THE YE AR UNDER CONSIDERATION ARE STATED TO BE IDENTICAL TO THAT OF ASSESSMENT YE AR 2006-07. IN THE CIRCUMSTANCES, CONSISTENT WITH THE DECISION ALREADY ARRIVED AT FOR THE ASSESSMENT YEAR 2006-07 ABOVE AND FOR THE REASONS S TATED THEREIN, WE SET ASIDE THE ORDERS OF LOWER AUTHORITY ON THE ISSUE OF DISALLOWANCE OF VEHICLES TOWARDS PERSONAL USE OF THE DIRECTORS. THE ASSESSI NG OFFICER IS DIRECTED TO DELETE THE ADDITION OF RS.1,29,822. 13. IN THE RESULT, ALL THE APPEALS FILED BY THE ASS ESSEE STAND ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 07 TH AUGUST, 2014. SD/- SD/- (CHANDRA POOJARI) (N.R.S. GANESAN) ACCOUNTANT MEMBER JUDICIAL MEMBER COCHIN, DT : 07 TH AUGUST, 2014 PK/- 8 ITA NO.269-271/COCH/2013 COPY TO: 1. ACE MOTORS PVT LTD, LEELA TOWERS, KALLAI ROAD, K OZHIKODE 2. THE ACIT, CIR.1(1), CALICUT 3. THE COMMISSIONER OF INCOME-TAX, CALICUT 4. THE COMMISSIONER OF INCOME-TAX(A), CALICUT 5. THE DR (TRUE COPY) BY ORDER ASSTT. REGISTRAR, INCOME-TAX APPELLATE TRIBUNAL, COCHIN BENCH