M/s Emdee Apparels, Bangalore V. ACIT, Bangalore

ITA 576/BANG/2011

• Counselvise Citation: 57621114 RSA 2011
• Duration Of Justice: 1 year(s) 4 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-09-2012
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Assessment Year: 2006-2007
• Appeal Filed On: 16-05-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: A SUNDARARAJAN
• Assessee Lawyers: K K CHYTHANYA
• Keywords: Capital asset; Depreciation; Revenue expenditure; Capital expenditure
• Section: 234B; 10(10D); 37

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL BANGALORE BANGALORE BANGALORE BANGALORE BENCH BENCH BENCH BENCH B BB B BEFORE SMT. P.MADHAVI DEVI, JUDICIAL MEMBER BEFORE SMT. P.MADHAVI DEVI, JUDICIAL MEMBER BEFORE SMT. P.MADHAVI DEVI, JUDICIAL MEMBER BEFORE SMT. P.MADHAVI DEVI, JUDICIAL MEMBER AND AND AND AND SHRI JASON P. BOAZ, ACCOUNTANT MEMBER SHRI JASON P. BOAZ, ACCOUNTANT MEMBER SHRI JASON P. BOAZ, ACCOUNTANT MEMBER SHRI JASON P. BOAZ, ACCOUNTANT MEMBER ITA NO.576/BANG/2011 (ASSESSMENT YEAR: 2006-07) AND ITA NO.577/BANG/2011 (ASSESSMENT YEAR: 2006-07) 1. M/S.EMDEE APPARELS, NO.7 & 8, SOUTH END ROAD, SESHADRIPURAM, BANGALORE-20. PAN: AAIFA 9888J 2. M/S.EMDEE ENTERPRISES, NO.7 & 8, SOUTH END ROAD, SESHADRIPURAM, BANGALORE-20. PAN: AAAFE 4553 C VS. APPELLANT ASST. COMMISSIONER OF INCOME-TAX, CIRCLE 6(1), BANGALORE. RESPONDENT ASSESSEES BY: SHRI K.K.CHYTHANYA, ADVOCATE. RESPONDENT BY : SHRI A.SUNDARARAJAN, JCIT. DATE OF HEARING: 22-08-2012. DATE OF PRONOUNCEMENT: 21-09-2012. O R D E R O R D E R O R D E R O R D E R PER PER PER PER SMT. P.MADHAVI DEVI, JM SMT. P.MADHAVI DEVI, JM SMT. P.MADHAVI DEVI, JM SMT. P.MADHAVI DEVI, JM: :: : THESE APPEALS BY THE ASSESSEES ARE DIRECTED AGAINS T THE IDENTICAL ORDERS OF THE CIT(A)-III, BANGALORE, DATE D 31-12-2010 FOR THE ASSESSMENT YEAR 2006-07. ITA NOS.576 & 577/BANG/2011 PAGE 2 OF 12 2. ITA NO.576/BANG/2011 ITA NO.576/BANG/2011 ITA NO.576/BANG/2011 ITA NO.576/BANG/2011 : : : : IN THIS APPEAL, THE ASSESSEE HAS FILED THE FOLLOWING CONCISE GROUNDS OF APPEAL: 1) THE LEARNED CIT(A) IS NOT JUSTIFIED IN PARTLY UPHOLDING THE DISALLOWANCE OF AN AMOUNT OF `19,39,647(OUT OF `31,20,848/-) MADE BY THE LEARNED RESPONDENT, IN RESPECT OF EXPENDITURE INCURRED ON REFURBISHMENT OF SHOWROOMS BY TREATING THE SAME AS CAPITAL EXPENDITURE. 2) WITHOUT PREJUDICE TO THE ABOVE, THE LEARNED CIT( A) IS NOT JUSTIFIED IN UPHOLDING THE ALLOWANCE OF ONLY 50% OF DEPRECIATION ON THE IMPUGNED EXPENDITURE, EVEN THOUGH THE APPELLANT HAD USED THE SAME FOR MORE THAN 180 DAYS. 3) THE LEARNED CIT(A) IS NOT JUSTIFIED IN UPHOLDING THE DISALLOWANCE OF AN AMOUNT OF `4,87,255/- MADE BY THE LEARNED RESPONDENT IN RESPECT OF EXPENDITURE INCURRED ON THE PURCHASE OF KEYMAN INSURANCE POLICIES. 4) THE LEARNED CIT(A) IS NOT JUSTIFIED IN UPHOLDING THE DISALLOWANCE MADE BY THE LEARNED RESPONDENT OF A SUM OF `15,12,766/- INCURRED ON ACCOUNT OF SALES PROMOTION. 5) THE LEARNED CIT(A) IS NOT JUSTIFIED IN UPHOLDIN G THE DISALLOWANCE AN AMOUNT OF `1,02,700/- MADE BY THE LEARNED RESPONDENT IN RESPECT OF EXPENDITURE INCURRED ON ACCOUNT OF BROKERAGE, UNDER SECTION 40(A)(IA) FOR WANT OF DEDUCTION OF TAX AT SOURCE UNDER SECTION 194H. 6) THE LEARNED CIT(A) IS NOT JUSTIFIED IN UPHOLDING THE LEVY OF INTEREST UNDER SECTION 234B AND SECTION 234C. 3. AT THE TIME OF HEARING, THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT GROUND NOS.4 AND 5 RELATE T O DISALLOWANCE U/S 40(A)(IA) OF THE ACT FOR WANT OF DEDUCTION OF T AX AT SOURCE U/S 194H OF THE OF THE INCOME-TAX ACT, 1961 [HEREINAFTE R REFERRED TO AS 'THE ACT']. HE SUBMITTED THAT THE ASSESSEE HAS PAI D BROKERAGE AND SALES PROMOTION EXPENSES WITHOUT DEDUCTION OF TAX A T SOURCE U/S 194H AND THEREFORE THE DISALLOWANCE U/S 40(A)(IA) H AS BEEN MADE. ITA NOS.576 & 577/BANG/2011 PAGE 3 OF 12 HE SUBMITTED THAT WITHOUT GOING INTO THE MERITS OF THE DISALLOWANCE, THE ISSUE IS COVERED BY THE DECISION OF THE SPECIAL BENCH OF THE TRIBUNAL, VISHAKAPATNAM IN THE CASE OF MERILYN SHIPPING & TRANSPORTS VS. ADDL. CIT (2012) 20 TAXMANN.COM 244 WHEREIN IT HAS BEEN HELD THAT DISALLOWANCE U/S 40A(IA) CAN BE MADE ONLY WHEN THE AMOUNT IS PAYABLE AS ON 31 ST MARCH OF EVERY YEAR AND IT CANNOT BE INVOKED TO DISALLOW EXPENDITURE WHICH HAD ACTUALLY BEEN PAID DURING THE PREVIOUS YEAR WITHOUT TDS. THE LEARNED DEPARTMENTAL REPRESENTATIVE, HOWEVER, SUPPORTED THE ORDERS OF TH E AUTHORITIES BELOW. 4. HAVING HEARD BOTH THE PARTIES AND HAVING CONSID ERED THE MATERIAL ON RECORD, WE FIND THAT THIS ISSUE IS COVE RED BY THE DECISION OF THE SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF MERILYN SHIPPING & TRANSPORTS (SUPRA). RESPECTFULLY FOLLOWING THE SAME, WE REMA ND THIS ISSUE TO THE FILE OF THE AO TO VERIFY AS TO WH ETHER THE AMOUNTS HAVE BEEN PAID DURING THIS PREVIOUS YEAR AND ONLY I F THEY ARE NOT PAID BUT ARE PAYABLE AS ON 31 ST OF THE RELEVANT PREVIOUS YEAR, CAN THE PROVISIONS OF SEC.40A(IA) BE INVOKED. THESE GR OUNDS ARE THUS ALLOWED FOR STATISTICAL PURPOSES. 5. AS REGARDS THE GROUND RELATING TO LEVY OF INTER EST U/SS.234B AND 234C IS CONCERNED, WE FIND THAT IT IS CONSEQUEN TIAL AND THE AO IS DIRECTED TO GIVE CONSEQUENTIAL RELIEF, IF ANY, T O THE ASSESSEE. 6. AS REGARDS GROUND NO.1 RELATING TO DISALLOWANCE OF AN AMOUNT OF `15,16,265/- IN RESPECT OF EXPENDITURE IN CURRED ON REFURBISHMENT OF SHOWROOMS BY TREATING THE SAME AS CAPITAL EXPENDITURE, BRIEF FACTS OF THE CASE ARE AS UNDER: ITA NOS.576 & 577/BANG/2011 PAGE 4 OF 12 6.1 THE ASSESSEE IS A PARTNERSHIP FIRM ENGAGED IN THE BUSINESS OF RETAIL TRADING OF REEBOK FOOTWEAR AND S HOES. IT FILED ITS RETURN OF INCOME FOR THE ASSESSMENT YEAR 2006-07 ON 31-10-2006 DECLARING A TOTAL INCOME OF `40,25,257/-. DURING T HE ASSESSMENT PROCEEDINGS U/S 143(2) OF THE ACT THE AO OBSERVED T HAT THE ASSESSEE HAS DEBITED A SUM OF `33,66,638/- UNDER TH E HEAD RENOVATION AND REPAIRS IN THE PROFIT AND LOSS A/C AS EXPENSES. FROM THE DETAILS FURNISHED BY THE ASSESSEE, THE AO OBSERVED THAT THE SAME WERE INCURRED ON THE NEW SHOWROOMS TAKEN A T GARUDA MALL AND MARATHAHALLY. FROM THE AGREEMENTS OF THE ASSESSEE AND ITS SISTER CONCERN M/S.EMDEE ENTERPRISES WITH REEBO K, THE AO OBSERVED THAT THE AGREEMENTS ARE FOR BOTH LEASE OF AREA AS WELL AS FOR SUPPLY OF PRODUCTS OF REEBOK TO THE ASSESSEE AN D THAT THESE AGREEMENTS DO NOT HAVE ANY LIMITATION ON THE PERIOD NOR ANY TERMINATION CLAUSES OR CONDITIONS FOR TERMINATION E TC. THEREFORE, HE CAME TO THE CONCLUSION THAT THE AGREEMENT IS PERPET UAL AND PERMANENT IN NATURE EXCEPT IN THE CASE OF UNEXPECTE D HAPPENINGS OR DEFAULT OF THE ASSESSEE. HE FURTHER OBSERVED TH AT THESE AMOUNTS ARE SPENT FOR NEW SHOW-ROOMS AND THE PAYMENTS INCLU DE INTERIOR AND EXTERIOR WORKS, FURNITURE, MANNEQUINS, RACKS, L IGHT FITTINGS, PARTITIONS ETC., WHICH IS GOING TO PROVIDE THE ASSE SSEE BENEFIT OF ENDURING NATURE. HE THEREFORE HELD THAT SUCH EXPEN DITURE COULD NOT BE CLAIMED AS REVENUE EXPENDITURE. 6.2 HE ALSO EXAMINED THE ALLOWABILITY OF THE SAME S EPARATELY UNDER THE PROVISIONS OF SEC.30(A)(I) AND ALSO U/S 3 7 OF THE ACT. HE OBSERVED THAT U/S 30 ONLY AMOUNT SPENT ON REPAIR IS ALLOWABLE AND THAT REPAIRS IMPLY EXISTENCE OF A THING WHICH HAS M ALFUNCTIONED AND ITA NOS.576 & 577/BANG/2011 PAGE 5 OF 12 CAN BE SET RIGHT BY EFFECTING REPAIRS BY THE ASSESS EE AND THE ASSESSEE HAS INCURRED EXPENDITURE FOR SETTING UP A NEW SHOWROOM, HE HELD THAT IT CANNOT BE HELD TO BE REPAIR EXPENDI TURE AND THEREFORE IS NOT ALLOWABLE U/S 30(A)(I) OF THE ACT. 6.3 AS REGARDS THE APPLICABILITY OF SEC.37 OF THE A CT, HE HELD THAT THE ASSESSEE WAS GETTING ENDURING BENEFIT FROM THE ASSET CREATED BY SETTING UP A NEW SHOWROOM AND THEREFORE IT IS CAPITAL IN NATURE AND CANNOT BE ALLOWED U/S 37 OF THE ACT. HO WEVER, HE HELD THAT THE ASSESSEE IS ELIGIBLE FOR DEPRECIATION AT T HE RATE OF 10% ON THE CAPITALIZATION OF THIS AMOUNT AS MOST OF THE IT EMS WERE FURNITURE AND ELECTRICAL IN NATURE. HOWEVER, HE HELD THAT DEP RECIATION AT THE RATE OF OF THE PRESCRIBED RATE IS ALLOWABLE AS TH E BILLS FOR THESE ITEMS ARE ACCOUNTED FOR IN THE BOOKS OF THE ASSESSE E ONLY ON 31-3-2006 AND THEREFORE THESE ITEMS WERE PUT TO USE FOR LESS THAN 180 DAYS. 7. AGGRIEVED BY THE DISALLOWANCE BY THE AO, THE ASS ESSEE PREFERRED AN APPEAL BEFORE THE CIT(A). THE ASSESSEE REITERATED ITS SUBMISSIONS MADE BEFORE THE AO AND ALSO RELIED UPON VARIOUS DECISIONS TO BRING OUT THE DISTINCTION BETWEEN CAPI TAL AND REVENUE EXPENDITURE. IT WAS SUBMITTED THAT MERELY BECAUSE EXPENDITURE RESULTS IN ENDURING BENEFIT TO THE ASSESSEE WOULD N OT DETERMINE THE CAPITAL NATURE OF THE EXPENDITURE. IT WAS SUBMITTE D THAT THE EXPENDITURE INCURRED BY THE ASSESSEE WAS FOR MODIFI CATION OF THE SHOWROOMS TO SUIT PARTICULAR REQUIREMENT OF ITS BUS INESS AND PARTICULARLY ON A LEASEHOLD PREMISES FOR A SHORT DU RATION. THUS ACCORDING TO THE ASSESSEE, IT HAS TO BE TREATED AS REVENUE EXPENDITURE. THE CIT(A), AFTER EXAMINING THE NATUR E OF THE ITEMS ON ITA NOS.576 & 577/BANG/2011 PAGE 6 OF 12 WHICH THE EXPENDITURE HAS BEEN INCURRED HELD THAT P ART OF THE EXPENDITURE SUCH AS LIGHT FIXTURES, WOODEN FLOORING , MANNEQUIN, HANGERS AND RACKS TOTALLING TO `18,50,373/- IS REVE NUE EXPENDITURE AND ONLY THE BALANCE AMOUNT MAINLY ON ELECTRICAL AN D CIVIL WORKS IS CAPITAL EXPENDITURE. AS REGARDS THE RATE OF DEPREC IATION TO BE ALLOWED, HE DIRECTED THE AO TO RE-WORK THE DEPRECIA TION. AGGRIEVED BY THE CONFIRMATION OF THE DISALLOWANCE OF `15,16,2 65/- AS CAPITAL EXPENDITURE. THE ASSESSEE IS IN SECOND APPEAL BEFOR E US. 8. SHRI K.K.CHYTHANYA, LEARNED COUNSEL FOR THE ASSE SSEE, WHILE REITERATING THE SUBMISSIONS MADE BY THE ASSES SEE BEFORE THE AUTHORITIES BELOW, SUBMITTED THAT THE AO HAS MISGUI DED HIMSELF IN COMING TO THE CONCLUSION THAT THERE WAS NO TERMINAT ION CLAUSE IN THE AGREEMENT OF THE ASSESSEE WITH REEBOK AND ALSO THAT THE AGREEMENT WAS FOR THE LEASE OF THE PREMISES AS WELL AS FOR SUPPLY OF STOCK. HE SUBMITTED THAT THE ASSESSEE WAS THE RETA ILER OF REEBOK FOOTWEAR AND SHOES AND AS IT WAS REEBOK WHICH WOULD DETERMINE THE LOCATION OF THE SHOWROOM, THE AGREEMENT WOULD I NVARIABLY BE BETWEEN REEBOK AND THE LANDLORD. HE SUBMITTED THAT REEBOK WOULD THEREAFTER HANDOVER THE PREMISES TO THE ASSESSEE TO OPEN THE SHOWROOM AND DO THE RETAIL TRADING OF ITS GOODS. H E HAS DRAWN OUR ATTENTION TO VARIOUS CLAUSES OF THE AGREEMENT TO SH OW THAT THE TERM OF LEASE WAS FOR A PERIOD OF 4 YEARS ONLY AND ALSO THAT THE ASSESSEE WAS REQUIRED TO CARRY OUT INTERIOR AND EXTERIOR WOR KS OF THE SHOWROOM AND IT WAS ALSO REQUIRED TO PAY SECURITY D EPOSIT FOR THE LEASE OF THE PREMISES AND LEASE RENTALS. THUS, ACC ORDING TO HIM, THE ASSESSEE WAS IN OCCUPATION OF THE PREMISES FOR A LI MITED PERIOD ONLY AND THEREFORE BY CARRYING OUT THE INTERNAL AND EXTE RIOR WORKS ITA NOS.576 & 577/BANG/2011 PAGE 7 OF 12 REQUIRED TO DO ITS BUSINESS EFFECTIVELY AND EFFICIE NTLY AS PER THE REQUIREMENTS OF THE BRAND REEBOK, IT WOULD BE BUSIN ESS EXPENDITURE FOR THE RUNNING OF BUSINESS AND THEREFO RE REVENUE IN NATURE. HE SUBMITTED THAT THE TEST OF ENDURING NAT URE IS NOT THE ONLY TEST TO DETERMINE THE NATURE OF THE EXPENDITUR E. ACCORDING TO HIM, IT IS ALSO TO BE SEEN WHETHER THERE IS ANY CRE ATION OF NEW ASSET WHICH HAS ENLARGED THE SCOPE OF PROFIT MAKING TO CO ME TO THE CONCLUSION THAT IT IS IN THE NATURE OF CAPITAL EXPE NDITURE. ANOTHER ARGUMENT PUT FORTH BY THE LEARNED COUNSEL FOR THE A SSESSEE IS THAT EVEN THOUGH THE EXPENDITURE IS ON SETTING UP OF A N EW SHOWROOM, IT CANNOT BE HELD THAT THE ASSESSEE IS STARTING A NEW BUSINESS AS IT IS FOR THE EXPANSION OF ITS BUSINESS. THEREFORE, ACCO RDING TO HIM, THE EXPENDITURE IS TO BE HELD AS REVENUE IN NATURE. IN SUPPORT OF HIS ARGUMENTS, LEARNED COUNSEL FOR THE ASSESSEE PLACED RELIANCE UPON THE FOLLOWING DECISIONS: I) CIT VS. SAKTHI SUGARS LTD. (2010) 194 TAXMAN 91 (MAD), II) DIGITAL EQUIPMENT INDIA LTD. VS. DCIT (2006) 103 TTJ 329)(BANG-ITAT), III) CIT VS. ESCORTS FINANCE LTD. (2006) 155 TAXMAN 559(DELHI) IV) FITION HOTEL VS. ITO (2008 40-A BCAJ 293(ITAT- MUMBAI) V) CIT VS. REX TALKIES (1984) 148 ITR 560 (KAR) VI) CIT VS. B.V.RAMACHANDRAPPA & SONS (1991) 191 ITR 34 (KAR) VII) CIT VS. HEDE CONSULTANCY (P) LTD. (2003) 127 TAXMAN 597 (BOM) VIII) CIT VS. BHARAT COMMERCIAL CORPORATION (1997) 226 ITR 242 (PAT) ITA NOS.576 & 577/BANG/2011 PAGE 8 OF 12 IX) M/S.BANASHANKARI MEDICAL & ONCOLOGY RESEARCH CENTRE LTD. VS. ACIT (ITA NO.1217/BANG/07) (BANG-ITAT) THE LEARNED DEPARTMENTAL REPRESENTATIVE, ON THE OTH ER HAND, SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW AND S UBMITTED THAT THE CIT(A) HAS CONSIDERED THE FACTS OF THE CASE AND GRANTED RELIEF TO THE ASSESSEE ON THE EXPENDITURE WHICH WAS CLEARLY I N THE NATURE OF REVENUE. HE SUBMITTED THAT THE ASSESSEE HAS STARTE D TWO NEW SHOWROOMS AND MOST OF THE EXPENSES WERE ON CIVIL AN D ELECTRICAL WORKS AND THEREFORE THE ASSESSEE WAS GETTING ENDURI NG BENEFIT. THUS, ACCORDING TO HIM, THE ORDER OF THE CIT(A) HAS TO BE UPHELD. 9. HAVING HEARD BOTH THE PARTIES AND HAVING CONSID ERED THEIR RIVAL CONTENTIONS, WE FIND THAT THE FOLLOWING QUEST IONS ARISE FOR OUR CONSIDERATION: I) WHETHER SETTING UP A NEW SHOWROOM WOULD AMOUNT TO STARTING A NEW BUSINESS OR IS IT ONLY AN EXPANSI ON OF THE EXISTING BUSINESS? II) WHETHER THE EXPENDITURE ON CIVIL AND ELECTRICAL WOR KS INCURRED IN LEASEHOLD PREMISES WOULD FALL IN THE CAPITAL FIELD? AS REGARDS THE FIRST QUESTION, WE FIND THAT THE ASS ESSEE IS ALREADY IN THE BUSINESS OF RETAIL TRADING OF REEBOK FOOTWEAR A ND SHOES. WHAT THE ASSESSEE IS DOING IN THE RELEVANT ASSESSMENT YE AR IS OPENING A NEW OUTLET IN TWO DIFFERENT LOCATIONS. IN THESE TW O LOCATIONS ALSO THE ASSESSEE WOULD BE CARRYING ON THE BUSINESS OF RETAI L TRADING IN REEBOK SHOES AND FOOTWEAR ONLY. AS THE GOODS IN WH ICH THE ASSESSEE IS TRADING ARE ONE AND THE SAME, MERELY BY OPENING NEW SHOWROOMS IT CANNOT BE SAID THAT THE ASSESSEE IS ST ARTING A NEW ITA NOS.576 & 577/BANG/2011 PAGE 9 OF 12 BUSINESS. THE HONBLE MADRAS HIGH COURT IN THE CAS E OF SAKTHI SUGARS LTD. (SUPRA) WAS CONSIDERING THE CASE OF A SUGAR FACTORY WHERE IT SET UP TWO SUGAR UNITS AND THE EXPENDITURE INCURRED FOR THE PURPOSES OF SETTING UP THESE NEW UNITS WAS HELD TO BE REVENUE EXPENDITURE. THEREFORE, RESPECTFULLY FOLLOWING THE SAME, WE HOLD THAT BY SETTING UP NEW SHOWROOMS, THE ASSESSEE IS O NLY EXPANDING ITS BUSINESS AND IS NOT SETTING UP NEW BUSINESS. COMING TO QUESTION NO.2, WE FIND THAT IN A CATENA OF DECISIONS RELIED UPON BY THE LEARNED COUNSEL FOR THE ASSESSEE (CITED SUPRA), IT HAS BEEN HELD THAT WHEN ANY EXPENDITURE IS INCURRED BY AN ASSESSEE ON LEASEHOLD PREMISES, EVEN THOUGH IT MAY GIVE AN ENDURING BENEFIT, IT WOULD NOT AMOUNT TO CAPITAL EX PENDITURE AS NO CAPITAL ASSET IS BEING CREATED IN FAVOUR OF THE ASS ESSEE. IN SOME OF THE CASES, THE EXPENDITURE IS ON CIVIL AND ELECTRIC AL WORKS ALSO. IN THE CASE BEFORE US, WE FIND THAT THE AO HAS ERRONEO USLY HELD THAT THERE WAS NO TERMINATION CLAUSE IN THE AGREEMENT OF LEASE AND THAT THE LEASE IS PERMANENT. WE FIND THAT THE LEASE IS FOR A PERIOD OF 4 YEARS ONLY AND THE ASSESSEE WAS TO PAY FOR LEASE RE NTAL AS WELL INTEREST-FREE SECURITY DEPOSIT FOR THE LEASE AND AL SO THAT THE ASSESSEE IS REQUIRED TO INCUR THE EXPENDITURE FOR I NTERIOR AND EXTERIOR WORKS FOR CARRYING ON THE BUSINESS AS PER BRAND SPECIFICATIONS. IN SUCH A SITUATION, IT CANNOT BE SAID THAT THE ASSESSEE IS DERIVING AN ENDURING BENEFIT NOR CAN IT BE SAID THAT ANY CAPITAL ASSET HAS BEEN CREATED IN FAVOUR OF THE ASS ESSEE. THE QUANTUM OF EXPENDITURE CANNOT DETERMINE THE NATURE OF THE EXPENDITURE. THEREFORE, RESPECTFULLY FOLLOWING THE DECISIONS RELIED UPON BY THE LEARNED COUNSEL FOR THE ASSESSEE WE HOL D THAT THIS ITA NOS.576 & 577/BANG/2011 PAGE 10 OF 12 EXPENDITURE IS REVENUE IN NATURE. THIS GROUND OF AP PEAL IS ACCORDINGLY ALLOWED. 10. AS WE HAVE ALREADY ALLOWED GROUND NO.1, THE GR OUND NO.2 WHICH IS WITHOUT PREJUDICE TO GROUND NO.1, NEEDS NO ADJUDICATION. 11. AS REGARDS GROUND NO.3, BRIEF FACTS OF THE CAS E ARE THAT THE ASSESSEE HAS TAKEN INSURANCE POLICIES ON THREE OF ITS PARTNERS TOTALLING TO AN AMOUNT OF `6 LAKHS. THE AO HELD TH AT AS THESE PARTNERS ARE NOT EMPLOYEES OF THE FIRM AND THEREFOR E, THE EXPENDITURE ON PURCHASE OF KEYMAN INSURANCE POLICY IS NOT ALLOWABLE. ON APPEAL, THE CIT(A) CONFIRMED THE SAI D ADDITION AND THE ASSESSEE IS IN SECOND APPEAL BEFORE US. 12. THE LEARNED COUNSEL FOR THE ASSESSEE, WHILE RE ITERATING THE SUBMISSIONS MADE BY THE ASSESSEE BEFORE THE AUT HORITIES BELOW, SUBMITTED THAT AS PER SEC.10(10D) OF THE ACT, KEYMA N INSURANCE POLICIES WOULD IMPLY LIFE INSURANCE TAKEN BY A PERS ON ON THE LIFE OF ANOTHER PERSON WHO IS OR WAS THE EMPLOYEE OF THE FI RST MENTIONED PERSON OR IS OR WAS CONNECTED IN ANY MANNER WHATSOE VER WITH THE BUSINESS OF THE FIRST MENTIONED PERSON. HE SUBMITT ED THAT THOUGH THE PARTNERS ARE NOT THE EMPLOYEES OF THE FIRM, THE Y ARE CONNECTED WITH THE BUSINESS OF THE FIRM AND THEREFORE THE INS URANCE POLICY TAKEN IN THEIR NAME FALL WITHIN THE MEANING OF KEYM AN INSURANCE POLICY. HE SUBMITTED THAT WHEN THE KEYMAN INSURANCE POLICY MATURES, THE INCOME RECEIVED WOULD BE TAXABLE IN TH E HANDS OF THE FIRM U/S 28(VI) OF THE ACT. HE SUBMITTED THAT BOTH THE AO AS WELL AS THE CIT(A) HAVE ERRONEOUSLY CONSIDERED ONLY THE FIR ST PART OF THE MEANING OF THE KEYMAN INSURANCE POLICY AND HAVE FAI LED TO CONSIDER THE IMPLICATION OF THE SECOND PART OF THE MEANING. ITA NOS.576 & 577/BANG/2011 PAGE 11 OF 12 THE LEARNED DEPARTMENTAL REPRESENTATIVE, HOWEVER, SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW. 13. HAVING HEARD BOTH THE PARTIES AND HAVING CONSID ERED THE MATERIAL ON RECORD, WE FIND THAT THE PARTNERS ARE CONNECTED WITH THE BUSINESS OF THE ASSESSEE AND THEREFORE ARE COV ERED BY THE SECOND PART OF THE MEANING GIVEN IN THE EXPLANATION TO SECTION 10(10D) OF THE ACT. THIS ISSUE IS ALSO COVERED BY THE DECISION OF THE TRIBUNAL IN THE CASE OF BANGALORE HOUSING DEVELOPMENT & INVESTMENTS VS. ACIT [2010-TIOL-385-ITAT-BANG(DATED 20-5-2010)] AND ALSO BY CIRCULAR NO.762 DATED 18-2-1998. RESPE CTFULLY FOLLOWING THE SAME, WE HOLD THAT THE PREMIUM PAID ON THE KEYM AN INSURANCE POLICIES TAKEN BY THE ASSESSEE ON THE LIFE OF ITS P ARTNERS IS ALLOWABLE AS EXPENDITURE. 14. IN THE RESULT, THE ASSESSEE APPEAL IS PARTLY A LLOWED. 15. ITA NO.577/BANG/2011 ITA NO.577/BANG/2011 ITA NO.577/BANG/2011 ITA NO.577/BANG/2011 : :: : THE GROUNDS OF APPEAL IN THIS APPEAL ARE SIMILAR TO GROUNDS OF APPEAL RAISED IN I TA NO.576/BANG/2011 IN THE CASE OF M/S.EMBEE APPARELS. FOR THE REASONS STATED ABOVE, THIS APPEAL OF THE ASSESSEE I S ALSO PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 21 ST SEPTEMBER,2012 . SD/- SD/- (JASO (JASO (JASO (JASON P. BOAZ N P. BOAZ N P. BOAZ N P. BOAZ) ) ) ) ACCOUNTANT MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER (SMT. (SMT. (SMT. (SMT.P. P.P. P. MADHAVI DEVI) MADHAVI DEVI) MADHAVI DEVI) MADHAVI DEVI) JUDICIAL MEMBER JUDICIAL MEMBER JUDICIAL MEMBER JUDICIAL MEMBER EKS ITA NOS.576 & 577/BANG/2011 PAGE 12 OF 12 COPY TO : COPY TO : COPY TO : COPY TO : 1. APPELLANT 2. RESPONDENT 3. CIT(A) CONCERNED 4. CIT 5. DR, ITAT, BANGALORE 6. GUARD FILE BY ORDER SENIOR PRIVATE SECRETARY INCOME-TAX APPELLATE TRIBU NAL, BANGALORE