Appeal details
Counselvise Citation
[2016] 133 COUNSELVISE.COM (IT) 7236 (ITAT-DELHI)
Assessee PAN
Bench
Appeal Number
Duration Of Justice
2 year(s) 3 month(s) 2 day(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
01-02-2016
Appeal Filed By
Department
Order Result
Dismissed
Bench Allotted
G
Next Hearing Date
17-11-2015
Assessment Year
2008-2009
Appeal Filed On
30-10-2013
Judgement Text
IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH G : NEW DELHI) BEFORE SHRI N.K. SAINI, ACCOUNTANT MEMBER AND SHRI A.T. VARKEY, JUDICIAL MEMBER ITA NO.5804/DEL./2013 (ASSESSMENT YEAR : 2008-09) DCIT, CIRCLE 7 (1), VS. M/S. SBI CARDS PAYMENTS & SERVICES PVT. LTD., NEW DELHI. 11, LOCAL HEAD OFFICE, PARLIAMENT STR EET, NEW DELHI. (PAN : AAECS5981K) (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI SANJAY SABHARWAL, SENIOR ADVOC ATE, SHRI TUSHAR JARWAL & SHRI RAHUL SATEEJA, ADVOCATES REVENUE BY : SHRI SUJIT KUMAR, SENIOR DR O R D E R PER A.T. VARKEY, JUDICIAL MEMBER : THIS APPEAL, AT THE INSTANCE OF THE REVENUE, IS FIL ED AGAINST THE ORDER OF CIT (APPEALS)-X, NEW DELHI DATED 22.08.2013 FOR THE ASSESSMENT YEAR 2008- 09. 2. THE GROUNDS OF APPEAL TAKEN BY THE REVENUE READ AS UNDER :- 1. THE LD. CIT (A) HAS ERRED IN LAW AND ON FACTS A ND CIRCUMSTANCES OF THE CASE, IN DELETING THE ADDITION OF RS.4,90,73 ,276/- BEING 75% OF RS.6,54,31,035/- CLAIMED BY THE ASSESSEE ON ACCOUNT OF CREDIT INVESTIGATION EXPENSES. 2. THE LD. CIT (A) ERRED IN LAW AND ON THE FACTS AN D CIRCUMSTANCES OF THE CASE, IN DELETING THE ADDITION OF RS.2,57,61,95 0/- BEING 75% OF APPLICATION CAPTURE EXPENSES. ITA NO.5804/DEL./2013 2 3. THE LD. CIT (A) ERRED IN LAW AND ON THE FACTS AN D CIRCUMSTANCES OF THE CASE, IN RESTRICTING THE ADDITION OF RS.100,00, 000/- OUT OF TOTAL ADDITION OF RS.1,05,27,85,289/- OF ADVERTISEMENT EXPENSES. 4. THE APPELLANT CRAVES TO AMEND, MODIFY, ALTER, AD D OR FOREGO ANY GROUND (S) OF APPEAL AT ANY TIME BEFORE OR DURING T HE HEARING OF THIS APPEAL. 3. GROUND NO.4 IS GENERAL IN NATURE AND DOES NOT RE QUIRE ANY ADJUDICATION. GROUND NO.1 4. AT THE OUTSET OF THE HEARING, THE LD. AR FOR THE ASSESSEE SUBMITTED THAT GROUND NO.1 IS COVERED AGAINST THE REVENUE BY THE D ECISION OF HONBLE JURISDICTIONAL HIGH COURT IN ASSESSEES OWN CASE FO R AY 2006-07 IN ITA 603/2014 & ITA 604/2014 ORDER DATED 29.09.2014. LD . DR COULD NOT CONTROVERT THAT THERE IS FACTUAL DIFFERENCE IN THE GROUND FOR AY 2006-07 BEFORE THE HONBLE DELHI HIGH COURT AND IN THE INST ANT APPEAL BEFORE US. 5. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. WE FIND THAT GROUND NO.1 IS DECIDED AGAINS T THE REVENUE BY THE HONBLE JURISDICTIONAL HIGH COURT IN ASSESSEES OWN CASE (SUPRA) VIDE PARAS 4 & 5, WHICH ARE REPRODUCED BELOW :- 4. WE ARE ENTIRELY IN AGREEMENT WITH THE FINDINGS OF THE COMMISSIONER OF INCOME TAX (APPEALS) AND THE TRIBUN AL TREATING THE SAID EXPENDITURE AS REVENUE IN NATURE. IN FACT, THE REAS ONING GIVEN BY THE ASSESSING OFFICER IS ERRONEOUS AND CONTRARY TO LAW. THE MAIN BUSINESS OF THE ASSESSEE, AS NOTED IN THE ASSESSMENT ORDER, WAS RECEIVING APPLICATIONS FROM PROSPECTIVE CLIENTS FOR ISSUE OF CREDIT CARDS, CONSEQUENT VERIFICATION AND ISSUANCE OF CREDIT CARDS. INFORMATION AND DETA ILS FURNISHED BY THE PROSPECTIVE CLIENTS HAD TO BE VERIFIED, DETAILS CHE CKED AND CREDITWORTHINESS ASCERTAINED. CREDIT CARD BUSINESS INVOLVED RISKS AS THE PERSON TO WHOM CREDIT CARD WAS ISSUED WAS ENTITLED TO MAKE PURCHAS ES AND SUBSEQUENTLY MAKE PAYMENT. THE AFORESAID EXERCISE TO VERIFY AND CHECK THE TRUTHFULNESS AND CORRECTNESS OF THE DETAILS/DATA AND CREDITWORTH INESS WAS A PART AND PARCEL OF THE DAY TO DAY CONDUCT OF BUSINESS. THE E XPENDITURE, IN FACT, WAS ITA NO.5804/DEL./2013 3 SIMILAR TO AND LIKE OTHER REVENUE EXPENDITURE INCUR RED IN THE NORMAL COURSE OF BUSINESS. THE AFORESAID EXERCISE HAD TO BE TAKEN PERIODICALLY AND ROUTINELY AS AND WHEN NEW APPLICATIONS WERE RECEIVE D FROM THE PROSPECTIVE CUSTOMER. IT WAS AN ONGOING, CONTINUOUS AND PERPETUAL EXERCISE, DIRECTLY CONNECTED WITH THE LINE OF BUSIN ESS. 5. OBSERVATION OF THE ASSESSING OFFICER THAT A DATA BASE WAS CREATED ON THE BASIS OF VERIFICATION AND THUS COULD BE USED IN FUTURE, IS FARFETCHED. CREDITWORTHINESS OF APPLICANTS WAS DYNAMIC AND COUL D TEND TO VARY AND CHANGE FROM TIME TO TIME. IT WAS NOT PERMANENT OR E VEN LONG LASTING. CREATION OF DATABASE WAS AN INCIDENTAL BY-PRODUCT A ND NOT THE PRIMARY REASON AND CAUSE FOR CARRYING OUT INVESTIGATION AND VERIFICATION. THE EXPENDITURE INCURRED TO CARRY OUT VERIFICATION WAS A PART OF THE RUNNING COST INCURRED TO EARN PROFIT. THE BUSINESS OF THE A SSESSEE WAS NOT TO CREATE AND SELL THE DATABASE OR PROVIDE THE SAID INFORMATI ON TO THIRD PARTIES FOR CONSIDERATION. IT WAS NOT AN EXPENDITURE INCURRED T O CREATE AN ASSET OR AN ASSET OF ENDURING NATURE. IT IS NOT THE CASE OF TH E REVENUE OR THE ASSESSING OFFICER THAT THE DATABASE WAS EVER SOLD TO THIRD PA RTIES. IT CERTAINLY DID NOT RESULT IN AN ADVANTAGE OF ENDURING NATURE. EVEN, EN DURING BENEFIT TEST AS ELUCIDATED BY THE SUPREME COURT IN EMPIRE JUTE COMP ANY VERSUS CIT (1980) 124 ITR 1 (SC), IS NOT APPLICABLE WHEN THE E XPENDITURE CONSISTS OF MERELY FACILITATING TRADING OR BUSINESS OPERATION O R ENABLES THE MANAGEMENT TO CONDUCT THE BUSINESS MORE EFFICIENTLY AS ELUCIDATED IN DETAIL IN PARAGRAPHS BELOW. THE COMMISSIONER OF INC OME TAX (APPEALS) RIGHTLY REFERRED TO AND OBSERVED THAT THE VERIFICAT ION REPORTS REGARDING CREDITWORTHINESS OF INDIVIDUAL/ PARTY, HAD A SHORT USEFUL LIFE AND THE INFORMATION COULD LOSE USEFULNESS WITHIN A SHORT TI ME. IT WOULD BE UNFIT AND SUPERFLUOUS GIVEN THE TRANSIENT AND EPHEMERAL N ATURE OF THE SAID DATA. IN ANY CASE, THE PRINCIPAL AND MAIN OBJECT OF THE A SSESSEE WAS TO APPRAISE AND ASCERTAIN FINANCIAL POSITION AND CREDITWORTHINE SS OF THE PERSON, SO AS TO ISSUE A CREDIT CARD AND EARN MONEY. IN FACT, IN SOM E CASES, NO CREDIT CARD WOULD HAVE BEEN ISSUED, DUE TO A NEGATIVE REPORT. T HESE WERE DIRECT BUSINESS EXPENSES, REVENUE IN NATURE. NO ONE WOULD ISSUE A CREDIT CARD OR ENTER INTO A TRANSACTION ON THE BASIS OF DATABASE A ND CREDIT VALUATION 6 OR 8 MONTHS OLD WITHOUT ASCERTAINING THE TRUE AND CORREC T POSITION AT THE RELEVANT TIME. ON EACH OCCASION, FRESH AND NEW VALU ATION HAD TO BE UNDERTAKEN. RESPECTFULLY FOLLOWING THE AFORESAID DECISION OF TH E HONBLE JURISDICTIONAL HIGH COURT, WE UPHOLD THE ORDER OF THE CIT (A) ON T HIS ISSUE AND REJECT THE GROUND NO.1 OF THE REVENUES APPEAL. ITA NO.5804/DEL./2013 4 GROUND NO.2 6. THE LD. AR FOR THE ASSESSEE, AT THE OUTSET OF TH E HEARING, SUBMITTED THAT GROUND NO.2 IS COVERED AGAINST THE REVENUE BY THE D ECISION OF HONBLE JURISDICTIONAL HIGH COURT IN ASSESSEES OWN CASE VI DE ORDER DATED 29.09.2014 (SUPRA). LD. DR COULD NOT CONTROVERT THAT THERE IS FACTUAL DIFFERENCE IN THE GROUND FOR AY 2006-07 BEFORE THE HONBLE DELHI HIGH COURT AND IN THE INSTANT APPEAL BEFORE US. 7. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. WE FIND THAT GROUND NO.2 IS DECIDED AGAINS T THE REVENUE BY THE HONBLE JURISDICTIONAL HIGH COURT IN ASSESSEES OWN CASE (SUPRA) VIDE PARA 6, WHICH ARE REPRODUCED BELOW :- 6. THE SECOND ADDITION OF RS.73,50,418/- MADE BY THE ASSESSING OFFICER WAS BY DISALLOWING 75% OF THE EXPENDITURE O F RS.98,00,557/-, INCURRED ON SCANNING OR CAPTURING THE APPLICATIONS DATA INTO ELECTRONIC FORM. THE DISALLOWANCE WAS ON THE GROUND THAT 75% O F THE SAID EXPENDITURE WAS CAPITAL IN NATURE. THE BALANCE, RS. 24,50,139/- WAS ALLOWED AS REVENUE EXPENDITURE. APPLICATIONS FROM T HE PROSPECTIVE CLIENTS, UPON RECEIPT WERE SCANNED/CAPTURED FOR SCRUTINY AND EVALUATION. COMPUTER DATA ENTRY OR SCAN WAS UNDERTAKEN. THE ASSESSING OF FICER HELD THAT THE EXPENDITURE WAS INCURRED ONCE AND FOR ALL AND THUS THE TRANSCRIPTION, CAPTURE OR E-FORMAT CONVERSION EXPENDITURE WOULD BE CAPITAL IN NATURE. THIS REASONING IS UNACCEPTABLE AND UNTENABLE. CRITE RIA/TEST OF ONCE FOR ALL/LUMP-SUM PAYMENT AND PERIODICAL PAYMENTS MAY NO T AND IN SEVERAL CASES WOULD NOT BE THE TRUE AND CORRECT TEST TO DET ERMINE, REVENUE OR CAPITAL NATURE OF AN EXPENSE. THE AIM AND OBJECT OF THE EXPENDITURE WOULD BE DECISIVE. EXPENDITURE FOR RUNNING OF BUSINESS OR WORKING WITH A VIEW TO PRODUCE PROFITS, WOULD BE REVENUE EXPENDITURE, WHER EAS EXPENDITURE TO ACQUIRE OR BRING INTO EXISTENCE AS ASSET OR ADVANTA GE OF ENDURING BENEFIT, WOULD BE OF CAPITAL NATURE. [SEE, CIT VERSUS J.K. S YNTHETICS LTD [2009] 309 ITR 371 (DEL)]. APPLICATION CAPTURE AND DATA E NTRY FACILITATED AND HELPED THE ASSESSEE TO CONDUCT THEIR DAY TO DAY BUS INESS OPERATIONS. PROFILES OF APPLICANTS AND THEIR CREDITWORTHINESS H AD TO BE ASSESSED AND EVALUATED ON SPECIFIC PARAMETERS. TO MAKE THE PROCE SS OF EVALUATION FASTER, ACCURATE AND MORE SYSTEMATIC, THE INFORMATI ON/DETAILS WERE SCANNED ITA NO.5804/DEL./2013 5 OR CAPTURED/CONVERTED INTO E-FORMAT. E-FORMATED DA TA PROCESSING ENSURED OBJECTIVITY AND FAIRNESS. THIS REDUCED POSSIBILITY OF ERRORS AND OF ISSUANCE OF CREDIT CARDS TO UNDESERVING CANDIDATES. WE ENT IRELY AGREE WITH THE COMMISSIONER OF INCOME TAX (APPEALS) AND THE TRIBUN AL THAT THIS EXPENDITURE INCURRED WAS REVENUE IN NATURE. RESPECTFULLY FOLLOWING THE AFORESAID DECISION OF TH E HONBLE JURISDICTIONAL HIGH COURT, WE UPHOLD THE ORDER OF THE CIT (A) ON T HIS ISSUE AND REJECT THE GROUND NO.2 OF THE REVENUES APPEAL. GROUND NO.3 8. AT THE THRESHOLD, THE LD. AR FOR THE ASSESSEE SU BMITTED THAT GROUND NO.2 IS COVERED AGAINST THE REVENUE BY THE DECISION OF HONBLE JURISDICTIONAL HIGH COURT IN ASSESSEES OWN CASE VIDE ORDER DATED 29.09.2014 (SUPRA). LD. DR COULD NOT CONTROVERT THAT THERE IS FACTUAL DIFFE RENCE IN THE GROUND FOR AY 2006-07 BEFORE THE HONBLE DELHI HIGH COURT AND IN THE INSTANT APPEAL BEFORE US. 9. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. WE FIND THAT GROUND NO.3 IS DECIDED AGAINS T THE REVENUE BY THE HONBLE JURISDICTIONAL HIGH COURT IN ASSESSEES OWN CASE (SUPRA) VIDE PARA 6, WHICH ARE REPRODUCED BELOW :- 8. THE THIRD AND THE LAST ISSUE RAISED IN THE PRES ENT APPEAL PERTAINS TO ADDITION OF RS.42,11,31,848/- ON ACCOUNT OF BRAND C REATION AND ADVERTISEMENT EXPENDITURE. THE ASSESSEE HAD ADVERTI SED AND INCURRED SALE PROMOTION EXPENDITURE TO THE TUNE OF RS.56,15,09,13 1/-. THE ASSESSING OFFICER HELD THAT THIS EXPENDITURE WAS IN THE NATUR E OF BRAND BUILDING AS IT HAD HELPED THE ASSESSEE TO INCREASE THEIR MARKET SH ARE AND ENHANCE VOLUMES/TURNOVER AND THEREFORE, AN ASSET WAS CREA TED. HE HOWEVER ALLOWED DEPRECIATION ON THE AMOUNT DISALLOWED. ITA NO.5804/DEL./2013 6 9. AGAIN, IT IS DIFFICULT TO ACCEPT THE REASONING A S GIVEN BY THE ASSESSING OFFICER. THE BREAK-UP OF THE EXPENDITURE INCURRED BY THE RESPONDENT ASSESSEE AS NOTICED BY THE COMMISSIONER OF INCOME TAX (APPEALS), IS AS UNDER: PARTICULARS AMOUNT (RS.) ADVERTISING - ELECTRONIC AND PRINT MEDIA 64,136,170 ADVERTISING - OUTDOOR PUBLICITY 9,879,435 SALES COMMISSION 553,440,265 BRANCH INCENTIVES AND DEALER INCENTIVES 14,300,908 GIFTS 25,981,120 INSURANCE INCENTIVE 16,184,963 MERCHANT TILE UPS 4,150,131 OTHERS 13,940,478 TOTAL 702,014,470 LESS: DEFERMENT OF THE EXPENDITURE 140,505,339 EXPENSES AS PER THE PROFIT AND LOSS ACCOUNT 561,509,131 MAJOR EXPENDITURE OF ABOUT RS.55,34,40,265/- WAS ON ACCOUNT OF SALES COMMISSION WHICH HAD NOTHING TO DO WITH, WHAT THE A SSESSING OFFICER REGARDED AS THE BRAND BUILDING EXERCISE. THIS EXPEN DITURE WAS IN THE NATURE OF DIRECT SELLING EXPENSES AND RELATABLE TO AND GEN ERATED THE TURNOVER. THE COMMISSION PAYMENT WAS FOR DAY TO DAY OPERATIONS AN D DIRECTLY CONNECTED WITH THE TRADING/BUSINESS ITSELF. NO BENEFIT OF EN DURING NATURE OR CAPITAL ASSET WAS CREATED BY INCURRING THE SAID EXPENDITURE . 10. THE COMMISSIONER OF INCOME TAX (APPEALS) IN HIS ORDER HAS REFERRED TO DATA FOR EARLIER YEARS RELATING TO ADVE RTISEMENT AND SALES PROMOTION EXPENDITURE. FOR THE SAKE OF CONVENIENCE WE REPRODUCE THE DETAILS : THE YEAR-WISE DETAILS OF GROSS SALES VIS-A-VIS ADV ERTISEMENT AND SALES PROMOTION EXPENSES ALONG WITH THE RATIO OF EXPENSE S TO SALES ARE REPRODUCED HEREUNDER : ASSESSMENT YEAR ADVERTISEMENT TURNOVER (% AGE O F EXPENSE (RS. IN (RS. IN CRORES) TURNOVER CRORES) 2004-05 25.44 307.90 8% 2005-06 42.69 357.01 11% 2006-07 56.15 498.65 11% 2007-08 125.11 878.58 14% 2008-09 140.37 918.77 14% ITA NO.5804/DEL./2013 7 THE COMMISSIONER OF INCOME TAX (APPEALS) RIGHTLY OB SERVED THAT THE ASSESSEE HAD BEEN INCURRING THE AFORESAID EXPEN DITURE IN PRECEDING YEARS AND IN THE SUCCEEDING YEARS WITHOUT ANY MAJOR FLUCTUATIONS. THE COMMISSIONER OF INCOME TAX (APPEALS) HELD THAT IN T HE RAPIDLY AND CONSTANTLY CHANGING ECONOMIC ENVIRONMENT WITH CUT-T HROAT COMPETITION, ADVERTISEMENT AND PUBLICITY EXPENDITURE HAS TO BE I NCURRED ON DAY TO DAY BASIS. IT WAS AN EXPENDITURE FOR KEEPING THE BUSINE SS A PROFITABLE PROPOSITION. IT WAS DIRECTLY ASSOCIATED WITH THE RU NNING OF THE BUSINESS. NO INTANGIBLE ASSET WAS CREATED BECAUSE OF THE SAID EX PENDITURE. 11. WHEN EXAMINING THE QUESTION, WHETHER EXPENDITUR E IS CAPITAL OR REVENUE IN NATURE, ONE HAS TO BE GUIDED BY COMMERCI AL CONSIDERATIONS AND ONLY WHEN THE ADVANTAGE IS IN THE CAPITAL FIELD, TH E EXPENDITURE CAN BE DISALLOWED APPLYING THE ENDURING BENEFIT TEST. IF T HE ADVANTAGE CONSISTS OF MERELY FACILITATING TRADING OPERATIONS OR INCREASIN G PROFITABILITY OR ENABLING THE MANAGEMENT TO CONDUCT BUSINESS MORE EF FICIENTLY, WHILE LEAVING THE FIXED CAPITAL UNTOUCHED, THE EXPENDITUR E IS STILL ON REVENUE ACCOUNT. THUS THE ENDURING BENEFIT TEST, THOUGH THE PRIMARY TEST, CANNOT BE APPLIED WITHOUT REFERENCE TO THE PRACTICAL BUSINESS AND COMMERCIAL CONSIDERATIONS. THE ENDURING BENEFIT TEST FALTERS I F THE MAIN PURPOSE OF THE EXPENSE IS TO FACILITATE BUSINESS OPERATIONS, INCRE ASE PROFITABILITY AND CONDUCT BUSINESS IN AN EFFICIENT MANNER, WHILE LEAV ING THE CAPITAL ASSETS UNTOUCHED. THE SECOND TEST OF FIXED OR CIRCULATING CAPITAL TEST, WOULD BE DEBATABLE AND MAY NOT BE APPLIED UNLESS THE EXPENDI TURE NECESSARILY FALLS WITHIN ONE OF THE TWO CATEGORIES. NORMALLY EXPENDIT URE INCURRED BY THE ASSESSEE AS WORKING EXPENDITURE AS A PART OF PROCES S OF PROFIT EARNING, WOULD BE TREATED AS OPERATIONAL EXPENDITURE. 12. CERTAINLY THE EXPENDITURE UNDER CONSIDERATION W ERE NOT FOR ACQUISITION OF A SOURCE OF PROFIT OR INCOME BUT TO SECURE BETTER FINANCIAL RESULTS AND ENSURE GREATER OR INCREASED PROFITS FRO M THE ASSETS ALREADY CREATED. IT WAS TO INCREASE BUSINESS TURNOVER AND A TTRACT MORE AND NEW CUSTOMERS. IT WAS EXPENDITURE INCURRED FOR INCREAS ING PROFITS/INCOME. APPROPRIATE REFERENCE CAN BE MADE TO THE JUDGMENT O F THE SUPREME COURT IN EMPIRE JUTE CO. LTD. (SUPRA),WHEREIN IT HAS BEEN HELD:- NOW SO LONG AS THE EXPENDITURE IN QUESTION CAN BE CLEARLY REFERRED TO THE ACQUISITION OF AN ASSET WHICH FALLS WITHIN O NE OR THE OTHER OF THESE TWO CATEGORIES, SUCH A TEST WOULD BE A CRITIC AL ONE. BUT THIS TEST ALSO SOMETIMES BREAKS DOWN BECAUSE THERE ARE M ANY FORMS OF EXPENDITURE WHICH DO NOT FALL EASILY WITHIN THESE T WO CATEGORIES AND NOT INFREQUENTLY, AS POINTED OUT BY LORD RADCLI FFE IN COMMISSIONER OF TAXES V. NCHANGA CONSOLIDATED COPPE R MINES LTD. [(1965) 58 ITR 241 (PC) : 1964 AC 948] THE LIN E OF DEMARCATION IS DIFFICULT TO DRAW AND LEADS TO SUBTL E DISTINCTIONS BETWEEN PROFIT THAT IS MADE OUT OF ASSETS AND PRO FIT THAT IS MADE UPON ASSETS OR WITH ASSETS. MOREOVER, THERE MA Y BE CASES WHERE EXPENDITURE, THOUGH REFERABLE TO OR IN CONNEC TION WITH FIXED CAPITAL, IS NEVERTHELESS ALLOWABLE AS REVENUE EXPEN DITURE. AN ITA NO.5804/DEL./2013 8 ILLUSTRATIVE EXAMPLE WOULD BE OF EXPENDITURE INCURR ED IN PRESERVING OR MAINTAINING CAPITAL ASSETS. THIS TEST IS THEREFO RE CLEARLY NOT ONE OF UNIVERSAL APPLICATION. BUT EVEN IF WE WERE TO AP PLY THIS TEST, IT WOULD NOT BE POSSIBLE TO CHARACTERISE THE AMOUNT PA ID FOR PURCHASE OF LOOM HOURS AS CAPITAL EXPENDITURE, BECAUSE ACQUI SITION OF ADDITIONAL LOOM HOURS DOES NOT ADD AT ALL TO THE FI XED CAPITAL OF THE ASSESSEE. THE PERMANENT STRUCTURE OF WHICH THE INCO ME IS TO BE THE PRODUCE OR FRUIT REMAINS THE SAME; IT IS NOT ENLARG ED. WE ARE NOT SURE WHETHER LOOM HOURS CAN BE REGARDED AS PART OF CIRCULATING CAPITAL LIKE LABOUR, RAW MATERIAL, POWER ETC. BUT I T IS CLEAR BEYOND DOUBT THAT THEY ARE NOT PART OF FIXED CAPITAL AND H ENCE EVEN THE APPLICATION OF THIS TEST DOES NOT COMPEL THE CONCLU SION THAT THE PAYMENT FOR PURCHASE OF LOOM HOURS WAS IN THE NATUR E OF CAPITAL EXPENDITURE. XXX ...NOW IT IS TRUE THAT IF DISBURSEMENT IS MADE FOR ACQUISITION OF A SOURCE OF PROFIT OR INCOME, IT WOULD ORDINARILY, IN THE ABSENCE OF ANY OTHER COUNTERVAILING CIRCUMSTANCES, BE IN THE N ATURE OF CAPITAL EXPENDITURE. ... UNDOUBTEDLY, THE PROFIT-EARNING ST RUCTURE OF THE ASSESSEE WAS ENABLED TO PRODUCE MORE GOODS, BUT THA T WAS NOT BECAUSE OF ANY ADDITION OR AUGMENTATION IN THE PROF IT-MAKING STRUCTURE, BUT BECAUSE THE PROFIT-MAKING STRUCTURE COULD BE OPERATED FOR LONGER WORKING HOURS. THE EXPENDITURE INCURRED FOR THIS PURPOSE WAS PRIMARILY AND ESSENTIALLY RELATED TO THE OPERATION OR WORKING OF THE LOOMS WHICH CONSTITUTED THE PROFI T-MAKING APPARATUS OF THE ASSESSEE. IT WAS AN EXPENDITURE FO R OPERATING OR WORKING THE LOOMS FOR LONGER WORKING HOURS WITH A V IEW TO PRODUCING A LARGER QUANTITY OF GOODS AND EARNING MO RE INCOME AND WAS THEREFORE IN THE NATURE OF REVENUE EXPENDITURE. ... SIMILARLY, IF PAYMENT HAS TO BE MADE FOR SECURING ADDITIONAL POWE R EVERY WEEK, SUCH PAYMENT WOULD ALSO BE PART OF THE COST OF OPER ATING THE PROFIT- MAKING STRUCTURE AND HENCE IN THE NATURE OF REVENUE EXPENDITURE, EVEN THOUGH THE EFFECT OF ACQUIRING ADDITIONAL POWE R WOULD BE TO AUGMENT THE PRODUCTIVITY OF THE PROFIT-MAKING STRUC TURE. XXX WHEN DEALING WITH CASES OF THIS KIND WHERE THE QUES TION IS WHETHER EXPENDITURE INCURRED BY AN ASSESSEE IS CAPITAL OR R EVENUE EXPENDITURE, IT IS NECESSARY TO BEAR IN MIND WHAT D IXON, J., SAID IN HALLSTROM'S PROPERTY LTD. V. FEDERAL COMMISSIONER O F TAXATION [72 CLR 634] : WHAT IS AN OUTGOING OF CAPITAL AND WHAT IS AN OUTGOING ON ACCOUNT OF REVENUE DEPENDS ON WHAT THE EXPENDITURE IS CALCULATED TO EFFECT FROM A PRACTICAL AND BUSINESS POINT OF VIEW RATHER THAN UPON THE JURISTIC CLASSIFICATION OF THE LEGAL RIGHTS, IF ANY, SECURED, EMPLOYED OR EXHAUSTED IS THE PROCESS. THE QUESTION MUST BE VIEWED IN THE LARGER CONTEXT OF BUSINESS NECESSI TY OR EXPEDIENCY. IF THE OUTGOING EXPENDITURE IS SO RELAT ED TO THE CARRYING ON OR THE CONDUCT OF THE BUSINESS THAT IT MAY BE REGARDED AS AN INTEGRAL PART OF THE PROFIT-EARNING PROCESS A ND NOT FOR ACQUISITION OF AN ASSET OR A RIGHT OF A PERMANENT C HARACTER, THE ITA NO.5804/DEL./2013 9 POSSESSION OF WHICH IS A CONDITION OF THE CARRYING ON OF THE BUSINESS, THE EXPENDITURE MAY BE REGARDED AS REVENU E EXPENDITURE. SEE BOMBAY STEAM NAVIGATION CO.(1953) PVT. LTD. V. CIT [1965] 56 ITR 52 (SC). THE SAME TEST WAS FORMULATED BY LOR D CLYDE IN ROBERT ADDIE AND SON'S COLLIERIES LTD. V. IRC [1924 ] 8 TC 671, 676 (C SESS) IN THESE WORDS: IS IT PART OF THE COM PANY'S WORKING EXPENSES, IS IT EXPENDITURE LAID OUT AS PART OF THE PROCESS OF PROFIT- EARNING? OR, ON THE OTHER HAND, IS IT A CAPITAL OU TLAY, IS IT EXPENDITURE NECESSARY FOR THE ACQUISITION OF PROPER TY OR OF RIGHTS OF A PERMANENT CHARACTER, THE POSSESSION OF WHICH IS A CONDITION OF CARRYING ON ITS TRADE AT ALL? IT IS CLEAR FROM THE ABOVE DISCUSSION THAT THE PAYMENT MADE BY THE ASSESSEE FOR PURCHASE OF LOOM HOURS WAS EXPENDITURE LAID OUT AS PART OF THE PROCESS OF PROFIT-EARNING. IT WAS, TO USE LORD SOUMNAR'S WORDS, AN OUTLAY OF A BU SINESS IN ORDER TO CARRY IT ON AND TO EARN A PROFIT OUT OF TH IS EXPENSE AS AN EXPENSE OF CARRYING IT ON. IT WAS PART OF THE COST OF OPERATING THE PROFIT-EARNING APPARATUS AND WAS CLEARLY IN THE NAT URE OF REVENUE EXPENDITURE. 13. THE DELHI HIGH COURT HAS REPEATEDLY HELD THAT A DVERTISEMENT EXPENDITURES IN THE PRESENT DAY CONTEXT SHOULD NORM ALLY BE TREATED AS REVENUE EXPENDITURE, UNLESS THERE ARE SPECIAL CIRCU MSTANCES AND REASONS TO HOLD THAT THE EXPENDITURE WAS CAPITAL IN NATURE. TH E REASON IS THAT THE ADVERTISEMENTS DO NOT HAVE A LASTING AND LONG TERM EFFECT AND THE MEMORY OF THE CUSTOMERS OR TARGETED AUDIENCE IS SHORT LIVE D. THE ADVERTISEMENTS FADE AWAY AND DO NOT HAVE AN ENDURING IMPACT. IF TH ERE IS A LACK OF ADVERTISEMENT BY ONE, THE VACUUM AND SPACE IS TAKEN OVER BY OTHERS WITH BENEFIT AND ADVANTAGE TO THE DETRIMENT OF THE FIRST . REFERENCE CAN BE MADE TO CIT VS. SALORA INTERNATIONAL LTD. (2009) 308 ITR 199 (DELHI) AND THE SUBSEQUENT DECISION IN ITA NO.597/2014 TITLED CIT V S. M/S SPICE DISTRIBUTION LTD. DECIDED ON 19 TH SEPTEMBER, 2014. RESPECTFULLY FOLLOWING THE AFORESAID DECISION OF TH E HONBLE JURISDICTIONAL HIGH COURT, WE UPHOLD THE ORDER OF THE CIT (A) ON T HIS ISSUE AND REJECT THE GROUND NO.3 OF THE REVENUES APPEAL. 10. IN THE RESULT, THE APPEAL OF THE REVENUE IS DIS MISSED. ORDER PRONOUNCED IN OPEN COURT ON THIS 1 ST DAY OF FEBRUARY, 2016. SD/- SD/- (N.K. SAINI) (A.T. VARKEY) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED THE 1 ST DAY OF FEBRUARY, 2016/TS ITA NO.5804/DEL./2013 10 COPY FORWARDED TO: 1.APPELLANT 2.RESPONDENT 3.CIT 4.CIT(A)-X, NEW DELHI. 5.CIT(ITAT), NEW DELHI. AR, ITAT NEW DELHI.
