THE DY.C.I.T.-10(2), MUMBAI V. M/S. GENERAL MILLS INDIA PVT. LTD.(FORMERLY GODREJ PILLSBURY LTD.), MUMBAI

ITA 6324/MUM/2008

• Counselvise Citation: [2010] 135 COUNSELVISE.COM (IT) 3582 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 1 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-12-2010
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: G
• Next Hearing Date: 02-11-2010
• Assessment Year: 2001-2002
• Appeal Filed On: 27-10-2008
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: NARENDRA SINGH
• Assessee Lawyers: PVR RAGHAVAN
• Keywords: Capital asset; Business expenditure; Revenue expenditure; Capital expenditure
• Section: 143(3)

Judgement Text

I.T.A NO.6324/ MUM/2008 ASSESSMENT YEAR: 2001-02 1 IN THE INCOME TAX APPELLATE TRIBUNAL, G BENCH, MUMBAI. BEFORE SHRI D.K.AGARWAL (JUDICIAL MEMBER) AND SHRI PRAMOD KUMAR(ACCOUNTANT MEMBER) I.T.A NO.6324/ MUM/2008 ASSESSMENT YEAR: 2001-02 DY.COMMISSIONER OF INCOME TAX 10(2), .. APPELLA NT R.NO.432, 4 TH FLOOR, AAYAKAR BHAVAN, M.K.ROAD, MUMBAI-20. VS GENERAL MILLS INDIA PVT. LTD., ,. RESPOND EN T ( FORMERLY GODREJ PILLSBURY LTD.) PIROJSHANAGAR, EASTERN EXPRESS HIGHWAY, VIKHROLI, MUMBAI-79 PA NO.AAACG 1773 B APPELLANT BY: SHRI NARENDRA SINGH RESPONDENT BY : SHRI PVR RAGHAVAN O R D E R PER PRAMOD KUMAR: 1. THIS IS AN APPEAL FILED BY THE ASSESSING OFFICER AND IS DIRECTED AGAINST THE ORDER DATED 31 ST JULY, 2008 PASSED BY THE CIT(A)-VI, MUMBAI IN THE MATTER OF ASSESSMENT UNDER SECTION 143(3) OF THE INCOME TAX A CT, 1961, FOR THE ASSESSMENT YEAR 2001-02. 2. IN THE FIRST AND SECOND GROUNDS OF APPEAL, THE A SSESSING OFFICER HAS RAISED THE FOLLOWING GRIEVANCES:- I.T.A NO.6324/ MUM/2008 ASSESSMENT YEAR: 2001-02 2 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AS WELL AS IN LAW, THE CIT (A) HAS ERRED IN HOLDING THAT THE EXPENDITURE OF ` .10,93,93,677/- INCURRED ON PRODUCTION OF AD FILM IS FULLY ALLOWABLE AS BUSINES S EXPENDITURE IN THE PREVIOUS YEAR IN WHICH IT HAS BEEN INCURRED. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AS WELL AS IN LAW, THE LEARNED CIT (A) HAS ERRED IN HOLDING THAT THE EXPEN DITURE OF ` .10,93,93,,677/- INCURRED ON PRODUCTION OF AD FILM IS FULLY ALLOWABL E AS BUSINESS EXPENDITURE IN THE PREVIOUS YEAR AS HE FAILED TO APPRECIATE THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF MADRAS INDUSTRIAL INVE STMENT CORPORATION, 225 ITR 802. 3. THESE GRIEVANCES BEING INTER -CONNECTED, ARE TAK EN UP TOGETHER. THE RELEVANT MATERIAL FACTS ARE LIKE THIS. THE ASSESSEE IS ENGA GED IN PRODUCTION, MARKETING, SALE & DISTRIBUTION OF FOOD PRODUCTS. DURING THE COURSE O F ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE HAS CLA IMED DEDUCTION OF ` .10,93,93,677/- IN RESPECT OF ADVERTISING EXPENSES. IT APPEARS THAT THE ASSESSING OFFICER PROCEEDED ON THE BASIS THAT ENTIRE ADVERTIS ING EXPENSES PERTAIN TO PRODUCTION OF ADVERTISEMENT FILMS. THE ASSESSING OFFICER NOTED THAT THE ASSESSEE COMPANY IS IN THE BUSINESS OF MARKETING FOOD PRO DUCTS AND ATTA MANUFACTURED BY A PARTICULAR MILLAR WITH WHICH COMPANY HAS AN AGREEME NT. THE ASSESSEE COMPANY IS NOT IN THE BUSINESS OF PRODUCING ADVERTISEMENT FILM S BUT THSESE ADVERTISEMENT FILMS HAVE BEEN IN FACT USED FOR MARKETING OF PRODUCTS. THE ASSESSING OFFICER WAS OF THE VIEW THAT THE PRODUCTION OF ADVERTISEMENT FILM DOES NOT CONSTITUTE BUSINESS EXPENDITURE INCURRED BY THE ASSESSEE FOR THE BUSINE SS RATHER IT IS AN EXPENDITURE OF CAPITAL NATURE INCURRED TO ACQUIRE THE ASSET I.E. A DVERTISEMENT FILM, WHICH CAN BE EXPLOITED BY ADVERTISING IT AGAIN AND AGAIN ON TELE VISION AND OTHER MEDIA. IT WAS THUS OBSERVED THAT THE ADVERTISEMENT FILM BY ITSEL F DOES NOT CONSTITUTE ADVERTISEMENT THOUGH IT IS USED FOR ADVERTISING THE ASSESSEES PRODUCTS. THE ASSESSING OFFICER ALSO OBSERVED THAT IT IS THE BE NEFIT OF ENDURING NATURE IN THE SENSE THAT IT IS ONCE TELECASTED AND REPEATED TELECAST OF ADVERTISEMENT FILMS MAKES PEOPLE MORE AND MORE AWARE OF ADVERTISEMENT ABOUT THE BRA ND VALUE OF THE PRODUCT. IN VIEW OF THESE DISCUSSION AND RELYING UPON THE HONB LE BOMBAY HIGH COURT JUDGEMENT IN THE CASE OF CIT V. PATEL INTERNATIONAL FILM LTD., 102 ITR219(BOM), THE ASSESSING OFFICER DISALLOWED THE SAID EXPENDITURE. AGGRIEVED, INTER ALIA, BY THIS I.T.A NO.6324/ MUM/2008 ASSESSMENT YEAR: 2001-02 3 DISALLOWANCE, THE ASSESSEE CARRIED THE MATTER IN AP PEAL BEFORE THE CIT (A). IT WAS STATED BY THE ASSESSEE THAT THE SUM OF ` . 10,93,93,677/- WAS INCURRED BY THE ASSESSEE TOWARDS VARIOUS ITEMS I.E. OUTDOOR EXPENSES, PRESS MEDIA, SAMPLING EXPENSES, INCENTIVE S, SALES PROMOTION, PREMIUM COST, ETC BUT THESE EXPENSES WERE COVERED UNDER A B ROAD HEAD ADVERTISEMENT EXPENSES. IT WAS ALSO POINTED OUT THAT THE AO HAS NOT TAKEN COGNIZANCE OF THE VARIOUS OTHER EXPENSES MENTIONED UNDER THE BROAD HE ADING ADVERTISEMENT EXPENSES BUT HAS ARBITRARILY DECIDED TO DISALLOW T HE ENTIRE EXPENSES OF ` .10,93,93,677/- AS PAID TOWARDS ADVERTISING FILMS M ADE DURING THE YEAR AND PAID TO THE ASSESSEES ADVERTISERS. A REFERENCE WAS ALSO M ADE TO THE FACT THAT SIMILAR DISALLOWANCE MADE BY THE ASSESSING OFFICER IN A.YS. 1997-98 AND 1999-2000 HAS BEEN DELETED BY THE CIT (A) AND THE ORDER OF THE CI T (A) WAS CONFIRMED BY THE TRIBUNAL. IT WAS ALSO POINTED OUT THAT IN ANY EVEN T, THE AO ERRED IN NOT GIVING AN OPPORTUNITY TO THE ASSESSEE TO GIVE FURTHER EXPLANA TION AS WAS NECESSARY TO DECIDE THE MATTER IN HOLDING THAT THE EXPENDITURE ON ADVER TISEMENT FILM IS CAPITAL EXPENDITURE. IT WAS ALSO SUBMITTED THAT THE ASSESS EE IS NOT ENGAGED IN BUSINESS OF FEATURE FILM AND THAT THE ADVERTISEMENT FILM CANNOT BE SAID TO BE A BENEFIT OF ENDURING NATURE AND THAT IT IS PURELY FOR THE PURPO SE OF BUSINESS AND DO NOT RESULT THE ACQUISITION OF ANY PRODUCT WHICH ARE OF CAPITAL NATURE AND THAT PRODUCTION COST TOWARDS ADVERTISING FILM, TELECASTING THE SAME IN T ELEVISION IS WITH THE MOTIVE OF CREATING AWARENESS AND TO CAPTURE MORE BUSINESS IN THE INDIAN MARKET. RELIANCE WAS PLACED ON THE JUDGMENT OF THE HONBLE SUPREME C OURT IN THE CASE OF EMPIRE JUTE MANUFACTURING CO., 124 ITR 1(SC) AND THE DECISION O F THE TRIBUNAL IN THE CASE OF IAC VS JOSHI FORMULAS PVT. LTD.,42 TTJ 259(AHD). IT WA S IN THIS BACKDROP THAT THE CIT (A) DELETED THE DISALLOWANCE AND IN DOING SO, HE RELIED UPON THE TRIBUNALS DECISION IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 1997-98 . THE ASSESSING OFFICER IS AGGRIEVED AND IS IN APPEAL BEFORE US. 4. LEARNED DEPARTMENTAL REPRESENTATIVE PRIMARILY RE LIES UPON THE ORDER OF THE ASSESSING OFFICER AS ALSO THE HONBLE BOMBAY HIGH C OURT JUDGEMENT IN THE CASE OF PATEL INTERNATIONAL FILM LTD. (SUPRA). IT IS POINTE D OUT THAT THE TRIBUNALS DECISION FOR I.T.A NO.6324/ MUM/2008 ASSESSMENT YEAR: 2001-02 4 THE ASSESSMENT YEARS 1997-98 AND 1998-99 DOES NOT D EAL WITH SPECIFIC ARGUMENTS RAISED BY THE ASSESSING OFFICER WITH REGARD TO APPL ICABILITY OF HONBLE JURISDICTIONAL HIGH COURTS JUDGMENT IN THE CASE OF PATEL INTERNAT IONAL FILM LTD (SUPRA). WE ARE THUS URGED TO FOLLOW THE HONBLE JURISDICTIONAL HIG H COURT JUDGMENT IN THE CASE OF PATEL INTERNATIONAL FILM LTD (SUPRA) AND RESTORE TH E ORDER OF THE ASSESSING OFFICER. LEARNED COUNSEL FOR THE ASSESSEE, ON THE OTHER HAND , SUBMITS THAT THE ISSUE IS SQUARELY COVERED BY THE TRIBUNALS ORDER IN ASSESSE ES OWN CASE FOR THE ASSESSMENT YEARS 1997-98 AND 1998-99 AND WE MUST NOT DEVIATE F ROM THE SAME. IT IS POINTED OUT THAT IN THIS DECISION, THE TRIBUNAL HAS FOLLOWE D THE ORDER OF THE HONBLE SUPREME COURT IN THE CASE OF EMPIRE JUTE MANUFACTURING CO. (SUPRA) AND MERELY BECAUSE THE HONBLE BOMBAY HIGH COURT JUDGEMENT RELIED UPON AND THE HONBLE HIGH COURT IS NOT SPECIFICALLY DEALT WITH, THIS DECISION OF THE TRIBU NAL DOES NOT LOOSE ITS BINDING PRECEDENCE VALUE. WE ARE THUS URGED TO UPHOLD THE ORDER OF THE CIT (A) AND DECLINE TO INTERFERE IN THE MATTER. 5. HAVING GIVEN OUR CAREFUL CONSIDERATION TO THE RI VAL CONTENTIONS AND HAVING PERUSED THE MATERIAL ON RECORD, WE ARE INCLINED TO UPHOLD THE ORDER OF THE CIT (A) ON THIS ISSUE. IN DOING SO, WE HAVE TAKEN NOTE OF THE FACT THAT THE DECISION OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF PATEL INTE RNATIONAL FILM LTD (SUPRA) WAS IN ALTOGETHER DIFFERENT CONTEXT AND IT DOES NOT HAVE A NY APPLICATION ON THE FACTS BEFORE US. IN THE SAID DECISION, THEIR LORDSHIPS WAS DEALI NG WITH THE CASE OF AN ASSESSEE CARRYING OUT BUSINESS OF PROCESSING AND PRINTING MO VIE FILMS. THE ASSESSEE HAD PURCHASED A FILM BY NAME POMPOSH . THIS FILM WAS PURCHASED FOR A CONSIDERATION OF ` .60,000/- FROM M/S. PATEL INDIA LIMITED, WHICH, IN TURN, HAD PURCHASED IT FOR A CONSIDERATION OF ` .1,90,000/-. THE FILM POMPOSH WAS A FLOP FILM AND THE ASSESSING OFFICER DISALLOWED THE AMORTIZATION OF TH E COST OF FILM ON THE GROUND THAT HE DOUBTED THE BONAFIDES OF ASSESSEE COMPANY IN PUR CHASE OF THE SAID FILM. WHEN THE MATTER TRAVELED IN APPEAL BEFORE THE APPELLATE ASSISTANT COMMISSIONER, IT WAS CONTENDED BY THE ASSESSEE THAT THE FILM WAS PURCHAS ED NOT BECAUSE OF ITS COMMERCIAL VALUE IN EXHIBITING THE FILM IN PUBLIC B UT WITH A VIEW TO EXHIBIT THE SAME FOR INDUCING CONFIDENCE IN THE OTHER PRODUCERS BECA USE THAT FILM WAS FIRST I.T.A NO.6324/ MUM/2008 ASSESSMENT YEAR: 2001-02 5 GEVACOLOUR PICTURE EVER PRODUCED IN INDIA AND PROC ESSED IN THE FILM CENTRE LABORATORY, WHICH WAS OWNED BY THE ASSESSEE. THE A SSESSEES CONTENTION THUS WAS THAT THE PRIMARY REASON FOR PURCHASE OF THE FILM WA S TO USE FOR ADVERTISEMENT PURPOSE AND DISTRIBUTION OR EXHIBITION OF THE FILM WAS RELEGATED TO SECONDARY POSITION. WHILE THE APPELLATE ASSISTANT COMMISSION ER CONFIRMED THE ACTION OF THE ASSESSING OFFICER, THE TRIBUNAL ALLOWED THE CLAIM O F THE ASSESSEE AND HELD THAT ENTIRE EXPENSES OF ` .60,000/- FOR PURCHASE OF FILM WAS IN THE NATURE OF BUSINESS EXPENDITURE AS THE PURPOSE OF THE PURCHASING THE FI LM WAS TO SHOW TO ITS CUSTOMERS THAT BY USE THE COLOUR. ON THESE FACTS, THE HONBL E BOMBAY HIGH COURT WAS OF THE VIEW THAT WHILE WHATEVER EXPENDITURE IS NORMALLY IN CURRED FOR ADVERTISEMENT PURPOSE BY AN ASSESSEE IS REGARDED AS REVENUE EXPEN DITURE AND IS ALLOWED AS BUSINESS EXPENDITURE, ON THE FACTS OF THE PRESENT C ASE, THE EXPENDITURE ON PURCHASE OF FILM PAMPOSH CANNOT BE SAID TO BE ADVERTISEMEN T EXPENDITURE. THEIR LORDSHIPS HELD THAT BY PURCHASING THE FILM, THE ASSESSEE COMP ANY DID NOT INDULGE IN ANY ADVERTISEMENT AT ALL BUT ADVERTISEMENT WAS TO BE I NDULGED IN AFTER THE ASSET WAS ACQUIRED BY THE ASSESSEE COMPANY. IN OTHER WORDS, THE ASSESSEE THAT WAS ACQUIRED BY THE ASSESSEE COMPANY WAS CAPITAL ASSET TO BE USE D FOR THE PURPOSE OF ADVERTISEMENT OF THE BUSINESS THAT THE ASSESSEE COM PANY WAS GOING TO CARRY ON IN FUTURE AND, THEREFORE, THE EXPENDITURE WILL HAVE TO BE REGARDED AS A CAPITAL EXPENDITURE AND NOT REVENUE EXPENDITURE. 6. WE HAVE NOTED THAT THE FACTS OF THE CASE ARE MAT ERIALLY DIFFERENT FROM THE FACTS OF THE CASE BEFORE US. IN THE CASE BEFORE US , THE ADVERTISEMENT FILM, WHICH HAS BEEN PURCHASED, IS WHOLLY AND EXCLUSIVELY FOR THE A DVERTISEMENT PURPOSES FOR THE ASSESSEE AND IT HAS NO OTHER VALUE EXCEPT FOR THE P URPOSE OF ADVERTISEMENT. THIS IS IN SHARP CONTRAST WITH THE FACTS IN THE CASE OF PAT EL INTERNATIONAL FILM LTD (SUPRA), WHERE THE ADVERTISEMENT OF FILM WAS MEANT TO HAVE A COMMERCIAL VALUE BY WAY OF EXHIBITING AND DISTRIBUTING THE SAME THOUGH IT TURN S OUT TO BE A FLOP FILM AND, THEREFORE, SUCH COMMERCIAL VALUE WAS INSIGNIFICANT. AS FOR THE NATURE OF DEDUCTIBILITY OF EXPENDITURE INCURRED ON ADVERTISE MENT FILM, WE FIND THAT THE HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT V. GEO FFREY MANNERS AND CO. LTD., 315 I.T.A NO.6324/ MUM/2008 ASSESSMENT YEAR: 2001-02 6 ITR 134 (BOM) HAD AN OCCASION TO DEAL WITH THE ISSU E AND EXAMINE THE SCOPE OF THE JUDGEMENT IN THE CASE OF PATEL INTERNATIONAL FILMS LTD (SUPRA) ON THE SAID QUESTION. WHILE DOING SO, THEIR LORDSHIPS, INTER ALIA, OBSERV ED AS FOLLOWS:- THE PRINCIPAL CONTENTION BASED ON WHICH THE REVENU E HAS PREFERRED THIS APPEAL IS THAT THE TRIBUNAL WHILE PASSING THE JUDGE MENT IGNORED THE RATIO OF THE JUDGEMENT OF THIS COURT IN CIT V PATEL INTERNAT IONAL FILMS LTD(1976) 102 ITR 219. THE RESPONDENT-ASSESSEE HAS INCURRED THE EXPENDITUR E ON FILM PRODUCTION BY WAY OF ADVERTISEMENT FOR THE MARKETING OF PRODUCTS MANUFACTURED BY THEM. IT WAS THEIR SUBMISSION THAT THESE EXPENSES ARE PUR ELY OF REVENUE NATURE AND THEY DERIVE NO ENDURING BENEFIT TO THE COMPANY. TH EY ONLY WILL HELP THE COMPANY TO MAKE THE CUSTOMER AWARE OF THE EXISTENCE OF ITS PRODUCTS, INCLUDING IMPROVEMENT, IF ANY, IN THE MARKET WHICH MAY OR MAY NOT RESULT IN SALES. THE ASSESSING OFFICER DISALLOWED THE EXPEND ITURE BY HOLDING THAT IT IS CAPITAL IN NATURE. IN APPEAL PREFERRED BY THE ASSE SSEE BEFORE THE CIT 9A), THE CIT (A) WAS PLEASED TO HOLD THAT CONSIDERING THAT THESE ARE FILMS IN THE FORM OF ADVERTISEMENT WHOSE LIFE TERM CANNOT BE ASC ERTAINED THEY COULD NOT BE HELD AS CAPITAL EXPENDITURE EVEN IS RESULTED IN BENEFIT FOR MORE THAN ONE ACCOUNTING YEAR. THE REVENUE BEING AGGRIEVED PREFE RRED AN APPEAL BEFORE THE TRIBUNAL. THE TRIBUNAL RELIED ON ITS OWN JUDGE MENT IN THE CASE OF DCIT V. METRO SHOES P.LTD.(2002) 258 TIR (AT)106(MUMBAI). IN THAT CASE, THE TRIBUNAL IN RESPECT OF ADVERTISEMENT FILM WAS PLEAS ED TO HOLD THAT NO CAPITAL OR RIGHT OR BENEFIT OF ENDURING NATURE HAD BEEN CRE ATED OR ACQUIRED BY THE ASSESSEE BY PRODUCTION OF THE ADVERTISEMENT FILM. THE TRIBUNAL NOTED THAT THE ASSESSEE TO KEEP MASS INTEREST IN ITS PRODUCT H AS TO CONTINUOUSLY STRIVE TO KEEP ON ADVERTISING ITS PRODUCTS IN EVER INCREASING LY NOVEL WAYS AND METHODS, THROUGH THE MEDIA AND AS SUCH THE EXPENDIT URE INCURRED ON THE PRODUCTION OF THE ADVERTISEMENT FILM WAS IN THE NAT URE OF REVENUE EXPENDITURE. THE ONLY GROUND BASED ON WHICH THE REVENUE HAS APPR OACHED THIS COURT IS AS POINTED OUT EARLIER THAT THE TRIBUNAL IGNORED THE R ATIO OF THE JUDGEMENT IN PATEL INTERNATIONAL FILM LTD,(1976) 102 ITR 219(BOM ). WE MAY POINT OUT, THAT ON FACTS THERE THE ASSESSEE COMPANY WAS IN THE BUSINESS OF PROCESSING AND PRINTING MOVIE FILMS IN A PROCESSING AND PRINTI NG LABORATORY PURCHASED BY THEM. IT SUBSEQUENTLY PURCHASED A FILM PROCESSOR IN THE LABORATORY TO SERVE AS A MODEL FOR EXHIBITION TO INDUCE CONFIDENC E IN ITS CUSTOMERS BY WAY OF ADVERTISEMENT AND CLAIMED THE AMOUNT SPENT ON TH E PURCHASE AS BUSINESS EXPENDITURE. AFTER CONSIDERING THE FACTS A LEARNED BENCH OF THIS COURT NOTED AS UNDER:- IN OTHER WORDS, THE ASSET THAT WAS ACQUIRED BY THE ASSESSEE COMPANY WAS A CAPITAL ASSET TO BE USED FOR THE PURPOSE OF A DVERTISEMENT OF THE BUSINESS THAT THE ASSESSEE COMPANY WAS GOING TO CAR RY ON IN FUTURE I.T.A NO.6324/ MUM/2008 ASSESSMENT YEAR: 2001-02 7 AND, THEREFORE, THE EXPENDITURE WILL HAVE TO BE REG ARDED AS A CAPITAL EXPENDITURE AND NOT REVENUE EXPENDITURE. IT WOULD, THUS BE CLEAR THAT THE MACHINERY PURCHASE D WAS NOT IN RESPECT OF AN ONGOING BUSINESS OF THE ASSESSEE, BUT IN RESPECT OF THE BUSINESS WHICH WAS GOING TO BE CARRIED OUT IN THE FUTURE. IN THE INSTANT CASE AS THE FACTS BEAR OUT, THE ADVE RTISEMENT WAS IN RESPECT OF AN ONGONG BUSINESS OF THE ASSESSEE HEREIN. 4. A SIMILAR ISSUE HAD COME UP FOR CONSIDERATION BEFO RE THE DIVISION BENCH OF THE HIGH COURT OF PUNJAB AND HARYANA IN CIT V. LIBERTY GROUP MARKETING DIVISION [2008] 173 TAXMAN 439 . IN THAT CASE THE ASSESSEE HAD CLAIMED EXPENDITURE INCURRED ON GLOW SIGN BOARDS AS ALSO T.V. FILMS. THE EXPENDITURE WAS HELD TO BE REVENUE IN NATURE. 5. IN OUR OPINION THE CORRECT TEST TO BE APPLIED IN S UCH A CASE WOULD BE, THAT IF THE EXPENDITURE IS IN RESPECT OF AN ONGOING BUSINESS OF THE ASSESSEE AND THERE IS NO ENDURING BENEFIT IT CAN BE TREATED AS REVENUE EXPENDITURE. I F, HOWEVER, AND IF IT IS IN RESPECT OF BUSINESS WHICH IS YET TO COMMENCE THEN THE SAME CAN NOT BE TREATED AS REVENUE EXPENDITURE AS EXPENDITURE IS ON A PRODUCT YET TO B E MARKETED. CONSIDERING THE ABOVE, IN OUR OPINION THE JUDGMENT IN PATEL INTERNATIONAL FILM LTD.S CASE ( SUPRA ) IS CLEARLY DISTINGUISHABLE. THE CIT(A) AND THE TRIBUNAL ON THE FACTS OF THIS CASE WERE CLEARLY WITHIN THEIR JURISDICTION IN HOLDING THAT THE EXPENDITURE WAS BY WAY OF REVENUE EXPENDITURE AS IT WAS IN RESPECT OF PROMOTING ONGOING PRODUCTS OF THE ASSESSEE HEREIN. 6. FOR THE AFORESAID REASONS, WE FIND NO MERITS IN TH ESE APPEALS WHICH ARE ACCORDINGLY DISMISSED. THE FACTS OF THE CASE BEFORE US ARE MATERIALLY SIMI LAR TO THE JUDGEMENT OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF GEOFFREY MANNERS A ND CO. LTD (SUPRA). RESPECTFULLY FOLLOWING THE SAME, WE APPROVE THE CON CLUSIONS ARRIVED AT BY THE CIT (A) AND DECLINE TO INTERFERE IN THE MATTER. 7. LEARNED DEPARTMENTAL REPRESENTATIVES RELIANCE O N HONBLE BOMBAY HIGH COURTS JUDGEMENT IN PATEL INTERNATIONAL (SUPRA) IS OF NO RELEVANCE. IN ANY CASE, THE ISSUE IS ALSO COVERED BY TRIBUNALS DECISION IN ASS ESSEES OWN CASE FOR EARLIER YEAR. GROUND NOS.1 & 2 ARE THUS, DISMISSED. 8. IN GROUND NO.3, THE REVENUE HAS RAISED THE FOLLO WING GRIEVANCE: ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AS WELL AS IN LAW, THE LEARNED CIT (A) HAS ERRED IN HOLDING THAT THE EXPEN DITURE OF ` .2,18,977/- INCURRED ON OBTAINING CLUB MEMBERSHIP F EE IS ALLOWABLE AS BUSINESS EXPENDITURE. I.T.A NO.6324/ MUM/2008 ASSESSMENT YEAR: 2001-02 8 9. THE REPRESENTATIVES FAIRLY AGREE THAT THIS ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY THE HONBLE BOMBAY HIGH COURT JUDGEMENT IN THE CASE OTIS ELEVATOR CO. (I) LTD., V. CIT, 195 ITR 682 (BOM), WHEREIN, THE H ONBLE HIGH COURT HAS HELD THAT THE CLUB MEMBERSHIP FEES PAID BY THE ASSESSEE IS TO BE ALLOWED AS DEDUCTION. THIS VIEW HAS ALSO BEEN FOLLOWED IN ASSESSEES OWN CASE FOR THE A SSESSMENT YEARS 1997-98 AND 1998-99 ALSO. THE DECISION OF THE TRIBUNAL IN ASSESSEES O WN CASE FOR THE ASSESSMENT YEARS 1997- 98 AND 1998-99 HAS NOT BEEN CARRIED IN APPEAL BEFOR E THE HONBLE HIGH COURT. LEARNED DEPARTMENTAL REPRESENTATIVE, HOWEVER, DUTIFULLY REL IED UPON THE ORDER OF THE ASSESSING OFFICER. 10. IN VIEW OF ABOVE DISCUSSION AND RESPECTFULLY FO LLOWING THE DECISION OF THE HONBLE BOMBAY HIGH COURT AS ALSO THE DECISION OF T HE CO-ORDINATE BENCH IN ASSESSEES OWN CASE, WE UPHOLD THE ACTION OF THE CIT (A) AND D ECLINE TO INTERFERE IN THE MATTER. GROUND NO.3 IS THUS DISMISSED. 11. IN GROUND NO.4, THE REVENUE HAS RAISED THE FOLL OWING GRIEVANCE:- ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AS WELL AS IN LAW, THE LEARNED CIT (A) HAS ERRED IN HOLDING THAT THE EXPEN DITURE OF ` .11,17,245/- INCURRED ON ACQUIRING SOFTWARE IS ALLO WABLE AS REVENUE EXPENDITURE. 12. SO FAR AS THIS GRIEVANCE IS CONCERNED, THE RELE VANT MATERIAL FACTS ARE LIKE THIS. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE AS SESSING OFFICER NOTED THAT THE ASSESSEE HAS CLAIMED DEDUCTION OF ` .11,17,245/- ON ACCOUNT OF SOFTWARE EXPENSES UNDER THE HEAD OPERATING EXPENSES. IN RESPONSE T O ASSESSING OFFICERS REQUISITION TO FILE DETAILS OF THE SAID SOFTWARE EXPENSES, THE ASSESSEE FILED BREAK UP OF SOFTWARE EXPENSES, WHICH SHOWED THAT THE ASSESSEE HAD DEVELO PED SOFTWARE WITH THE HELP, ADVICE AND SERVICES OBTAINED FROM THE VARIOUS PARTI ES. THE ASSESSING OFFICER WAS OF THE VIEW THAT EVEN IF THE SOFTWARE IS DEVELOPED WIT H THE INTENTION OF SELF UTILIZATION, IT CAN BE AID THE SOFTWARE IS GIVING ENDURING BENEF IT TO THE ASSESSEE COMPANY FOR A LONG PERIOD OF TIME AND, THEREFORE, IN DEVELOPING, IT CANNOT BE TERMED AS REVENUE EXPENDITURE AND NOT ELIGIBLE FOR DEDUCTION U/S.37(1 ) OF THE ACT. IT WAS IN THIS I.T.A NO.6324/ MUM/2008 ASSESSMENT YEAR: 2001-02 9 BACKDROP THAT THE ASSESSING OFFICER DISALLOWED THE EXPENDITURE OF ` .11,17,245/- AS CAPITAL IN NATURE. WHEN THE MATTER WAS CARRIED IN APPEAL BEFORE THE CIT (A), THE CIT (A) DELETED THE DISALLOWANCE BY RELYING UPON DECIS ION OF THIS TRIBUNAL IN THE CASE OF IBM INDIA LTD V CIT, 290 ITR ( AT) 183, JCIT VS CIT ICORP OVERSEAS SOFTWARE LTD., 85 TTJ 87. THE ASSESSING OFFICER IS NOT SATISFIED AND IS IN APPEAL BEFORE US. 13. LEARNED DEPARTMENTAL REPRESENTATIVE POINTS OUT THAT THE SOFTWARE EXPENDITURE INCURRED BY THE ASSESSEE IS IN THE NATU RE OF DEVELOPMENT OF IN-HOUSE SOFTWARE AND, THEREFORE, THESE ARE TO BE TREATED ON A DIFFERENT FOOTING. HE, HOWEVER, FAIRLY SUBMITS THAT THE ISSUE OF DEDUCTIBILITY OF S OFTWARE WILL HAVE TO BE CONSIDERED IN THE LIGHT OF THE DECISION OF THE ITAT (SB) IN THE C ASE OF AMWAY INDIA ENTERPRISES V DCIT, 111 ITD 112 (DELHI)(SB). LEARNED COUNSEL FOR THE ASSESSEE, ON THE OTHER HAND, RELIES UPON THE ORDER OF THIS TRIBUNAL IN THE CASE OF IBM INDIA LTD V CIT, 290 ITR ( AT) 183, JCIT VS CITICORP OVERSEAS SOFTWARE LTD., 8 5 TTJ 87(SUPRA) AS WELL AS THE JUDGEMENT OF THE HONBLE RAJASTHAN HIGH COURT IN TH E CASE OF CIT V. LAKE PALACE HOTELS & MOTELS (P)LTD., 258 ITR 562 (RAJ) AS ALSO THE JUDGEMENT OF THE HONBLE SUPREME COURT IN THE CASE OF CCE VS ACER INDIA LTD. , (NO2) AND ORS, 3 RC 421 (SC). IT WAS SUBMITTED BY THE LEARNED COUNSEL FOR THE ASSESS EE THAT THE SOFTWARE EXPENSES ARE REVENUE EXPENSES IN NATURE AND IN VIEW OF THE L EGAL PRECEDENTS CITED BY HIM, THE SAME CONSTITUTE ADMISSIBLE DEDUCTION. 14. WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND PE RUSED THE MATERIAL ON RECORD. WE HAVE NOTED THAT THE SPECIAL BENCH OF TH IS TRIBUNAL IN THE CASE OF AMWAY INDIA ENTERPRISES (SUPRA) HAD AN OCCASION TO DEAL W ITH THE QUESTION OF DEDUCTIBILITY OF EXPENDITURE ON COMPUTER SOFTWARE. THE SPECIAL B ENCH AFTER ELABORATELY CONSIDERING THE JUDICIAL PRECEDENTS ON THE ISSUE HA S LAID DOWN THE GUIDELINES IN THE LIGHT OF WHICH, THE DEDUCTIBILITY OF SUCH EXPENSES ARE TO BE CONSIDERED. THE TRIBUNALS DECISIONS RELIED UPON BY LEARNED COUNSEL FOR THE ASSESSEE HAVE BEEN DULY CONSIDERED IN THE SAID SPECIAL BENCH DECISION AND T HE JUDGEMENT OF THE HONBLE HIGH COURT IS ALSO PRIOR TO THE SPECIAL BENCH DECISION, WHICH DO NOT DIRECTLY COVER THE ISSUE OF DEDUCTIBILITY OF SOFTWARE EXPENSES. IN TH ESE CIRCUMSTANCES AS ALSO BEARING I.T.A NO.6324/ MUM/2008 ASSESSMENT YEAR: 2001-02 10 IN MIND THE FACT THAT THE HONBLE SUPREME COURT JUD GEMENT REFERRED TO BY THE LEARNED COUNSEL FOR THE ASSESSEE ONLY DEAL WITH THE QUESTION REGARDING CLASSIFICATION OF SOFTWARE FOR THE PURPOSE OF CENTRAL-STATE DUTY- WHICH IS NO HELP TO US AT PRESENT. THEREFORE, WE DEEM IT FIT AND PROPER TO REMIT THE M ATTER BACK TO THE FILE OF THE ASSESSING OFFICER FOR ADJUDICATION DENOVO IN ACCORD ANCE WITH THE LAW AND AFTER TAKING INTO ACCOUNT THE SPECIAL BENCH DECISION IN T HE CASE OF AMWAY INDIA ENTERPRISES (SUPRA), WHICH SET OUT THE ELABORATE GU IDELINES IN THE LIGHT OF WHICH, THE CLAIM OF DEDUCTIBILITY IS TO BE CONSIDERED. IN THI S VIEW OF THE MATTER AND IN THE MANNER INDICATED ABOVE, THE MATTER IS RESTORED TO T HE FILE OF THE AO. THIS GROUND IS ALLOWED FOR STATISTICAL PURPOSES. 15. IN THE RESULT, THE APPEAL STANDS PARTLY ALLOWED FOR STATISTICAL PURPOSES. PRONOUNCED IN THE OPEN COURT ON 20 TH DECEMBER, 2010 SD/- (D.K.AGARWAL) (JUDICIAL MEMBER) SD/- (PRAMOD KUMAR) (ACCOUNTANT MEMBER) MUMBAI, DATED 20 TH DECEMBER , 2010 PARIDA COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. COMMISSIONER OF INCOME TAX (APPEALS)-VI, MUMBAI 4. COMMISSIONER OF INCOME TAX, CITY -6, MUMBAI 5. DEPARTMENTAL REPRESENTATIVE, BENCH G, MUMBAI //TRUE COPY// BY ORDER ASSTT. REGISTRAR, ITAT, MUMBAI I.T.A NO.6324/ MUM/2008 ASSESSMENT YEAR: 2001-02 11 I.T.A NO.6324/ MUM/2008 ASSESSMENT YEAR: 2001-02 12