Autodesk India Private Limited, Bangalore V. DCIT, Bangalore

ITA 912/BANG/2011

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 95281 (ITAT-BANGALORE)
• Duration Of Justice: 3 year(s) 11 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-09-2015
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 31-08-2015
• Assessment Year: 2007-2008
• Appeal Filed On: 19-10-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: G R REDDY CITIDR
• Assessee Lawyers: T SURYANARAYAN
• Keywords: Related party transaction; Capital asset; Transfer pricing; International transaction; Capital receipt; Revenue expenditure; Capital expenditure
• Section: 37

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH : BANGALORE BEFORE SMT. ASHA VIJAYARAGHAVAN, JUDICIAL MEMBER AND SHRI ABRAHAM P. GEORGE, ACCOUNTANT MEMBER IT(TP)A NO.912/BANG/2011 ASSESSMENT YEAR : 2007-08 AUTODESK INDIA PVT. LTD., A4, A WING, 2 ND FLOOR, DIVYASHREE CHAMBERS, LANGFORD ROAD, BANGALORE 560 025. PAN : AABCA 6924B VS. THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE 11(1), BANGALORE. APPELLANT RESPONDENT APPELLANT BY : SHRI T. SURYANARAYAN, ADVOCATE RESPONDENT BY : SHRI G.R. REDDY, CIT-I(DR) DATE OF HEARING : 31.08.2015 DATE OF PRONOUNCEMENT : 30.09.2015 O R D E R PER ASHA VIJAYARAGHAVAN, JUDICIAL MEMBER THE ASSESSEE WAS SET UP AS A SUBSIDIARY OF AUTODES K US IN OCTOBER 1998 AND IS ENGAGED IN PROVIDING TECHNICAL SUPPORT SERVICES AND MARKETING SUPPORT SERVICES TO ITS OVERSEAS ASSOCIATED ENTERPR ISES. AS ON 31ST MARCH 2007, THE ENTIRE SHARE CAPITAL OF AUTODESK WAS HELD BY AUTODESK US, WITH ITA NO.912/BANG/2011 PAGE 2 OF 16 TWO SHARES HELD BY AUTODESK ASIA PTE. LTD, SINGAPOR E. AUTODESK US IS ENGAGED IN DESIGNING SOFTWARE AND PRODUCING DIGITAL CONTENT FOR ARCHITECTURAL DESIGN AND LAND DEVELOPMENT, MANUFACT URING, UTILITIES, TELECOMMUNICATIONS AND MEDIA AND ENTERTAINMENT. AUT ODESK SINGAPORE IS ENGAGED IN THE BUSINESS OF DEVELOPING, DISTRIBUTING AND SUPPORTING SOFTWARE AND HARDWARE PRODUCTS AND SUPPORT SERVICES IN ASIA, AUSTRALIA AND THE SOUTH PACIFIC. BEING A CAPTIVE SERVICE PROVIDER, AU TODESK INDIA ASSUMES LESS THAN NORMAL RISKS AND ALL SIGNIFICANT BUSINESS AND ENTREPRENEURIAL RISKS ARE BORNE BY THE OVERSEAS AFFILIATES. 2. DURING THE FINANCIAL YEAR 2006-07 RELEVANT TO TH E ASSESSMENT YEAR 2007-08, SOFTWARE DEVELOPMENT (TECHNICAL SUPPORT) A ND MARKETING SUPPORT WERE THE ONLY SERVICES RENDERED BY AUTODESK TO ITS ASSOCIATED ENTERPRISES (AES). 3. THE TP ISSUE IN THE PRESENT APPEAL PERTAINS TO T HE AFORESAID TWO INTERNATIONAL TRANSACTIONS TOWARDS WHICH A TOTAL AD JUSTMENT OF RS.6,53,62,861/- WAS MADE BY THE TPO. ALSO, FOR TH E A.Y. 2007-08, THE ASSESSEE CLAIMED A DEDUCTION OF RS. 80,73,695/- ON ACCOUNT OF ADVANCES WRITTEN OFF WHICH WAS DEBITED TO THE PROFIT AND LOS S ACCOUNT. THE AO HAS MADE A DISALLOWANCE OF THE SAID AMOUNT ON THE GROUN D THAT IT WAS A CAPITAL EXPENDITURE NOT ALLOWABLE UNDER SECTION 37 OF THE A CT. ITA NO.912/BANG/2011 PAGE 3 OF 16 4. ORIGINALLY, A DRAFT ASSESSMENT ORDER WAS PASSED ON 23.11.2010 CHALLENGING WHICH, THE ASSESSEE FILED ITS OBJECTIO NS BEFORE THE DISPUTE RESOLUTION PANEL (DRP). 5. THE DRP UPHELD THE ORDER PASSED BY THE AO. CONS EQUENTLY, THE AO PASSED THE FINAL ORDER DATED 24.08.2011. BASED O N THE FINAL ORDER, THE AO RAISED A DEMAND FOR THE BALANCE TAX PAYABLE OF R S. 3,86,82,062. 6. THE ASSESSEE ENTERED INTO INTERNATIONAL TRANSACT ION IN RESPECT OF SOFTWARE DEVELOPMENT SERVICES OF RS.2,19,38,411 AND MARKETING SUPPORT SERVICES OF RS.33,50,29,288. WITH RESPECT TO SOFTW ARE DEVELOPMENT SERVICES, THE NET MARGIN OF THE ASSESSEE WAS AT 10% . THE COMPARABLES SELECTED BY THE ASSESSEE WERE AS FOLLOWS:- ITA NO.912/BANG/2011 PAGE 4 OF 16 ITA NO.912/BANG/2011 PAGE 5 OF 16 7. THE TRANSFER PRICING OFFICER (TPO) ACCEPTED 10 C OMPARABLES OUT OF 55 COMPARABLES SELECTED BY THE ASSESSEE. THE TPO A PPLIED PROWESS DATABASE, CAPITALINE PLUS DATABASE AS FILTERS AND S ELECTED THE FOLLOWING COMPARABLES:- 8. THE ARITHMETIC MEAN ARRIVED BY THE ASSESSEE WAS AT 14.64, WHEREAS THE ARITHMETIC MEAN ARRIVED BY THE TPO WAS AT 23.59 . ITA NO.912/BANG/2011 PAGE 6 OF 16 9. THE ASSESSEE HAS RAISED ADDITIONAL GROUNDS OF AP PEAL UNDER RULE 11 OF THE I.T. RULES, WHICH READ AS FOLLOWS:- 4.14 THAT, GEOMETRIC SOFTWARE SOLUTIONS CO. LTD. O UGHT TO STAND REJECTED IN VIEW OF ITS RELATED PARTY TRANSAC TIONS EXCEEDING 15% OF ITS SALES. 4.15 THAT, ACCEL TRANSMATICS LTD., HELIOS & MATHESO N INFORMATION TECHNOLOGY LTD. AND THIRDWARE SOLUTIONS LTD. OUGHT TO STAND REJECTED IN VIEW OF THEM BEING FUNCTIONALL Y DISSIMILAR TO THE APPELLANT. 10. BEFORE US, THE LD. COUNSEL FOR THE ASSESSEE SUB MITTED THAT OUT OF 26 COMPARABLES SELECTED BY THE TPO, THE ASSESSEE HAS R EJECTED 19 COMPARABLES AND THE REASON FOR REJECTION ARE AS FOL LOWS. 11. GEOMETRIC LTD. (SL.NO.7 OF THE TPOS COMPARABLE S) OUGHT TO STAND REJECTED IN VIEW OF ITS RELATED PARTY TRANSACTION E XCEEDING 15% OF ITS SALES IN VIEW OF DECISION OF THIS TRIBUNAL IN THE CASE OF 24/7 CUSTOMER COM PVT. LTD., ITA NO.227/BANG/2010 (PARA 13) . 9 COMPARABLES SELECTED BY THE TPO AT SL.NOS. 1, 2, 3, 5, 8, 12, 14, 19 & 25 HAVE TO BE REJECTED AS FUNCTIONALLY DISSIMILAR IN VIEW OF THE DECISION OF THIS TRIBUNAL IN THE CASE OF NXP SEMICONDUCTORS INDIA P. LTD., ITA NO.1174/BANG/ 2011 (PARAS 18 TO 20 AND 26 TO 28 OF THE DECISION) . 4 COMPANIES AT SL.NOS. 6, 9, 17 & 22 OUGHT TO BE REJECTED APPLYING THE UPPER LIMIT OF RS.200 C RORES TO THE TURNOVER IN VIEW OF DECISION OF THIS TRIBUNAL IN TRILOGY E-BUSINESS SOFTWARE INDIA PVT. LTD. IN ITA NO.1054/BANG/2011 (PARAS 11 TO 20) . 5 OTHER COMPARABLES ARE TO BE REJECTED ON APPLICATION OF MORE THAN ONE FILT ER. COMPANIES AT ITA NO.912/BANG/2011 PAGE 7 OF 16 SL.NO.10, 18, 24 & 26 OUGHT TO BE REJECTED AS FUNCT IONALLY DISSIMILAR IN VIEW OF THE DECISION OF THIS TRIBUNAL IN THE CASE OF NXP SEMICONDUCTORS INDIA P. LTD. (SUPRA) [PARAS 24 TO 26] , AS ALSO APPLYING THE UPPER LIMIT OF RS.200 CRORES TO THE TURNOVER AS HELD IN TRILOGY E-BUSINESS SOFTWARE INDIA PVT. LTD. (SUPRA) . ISHIR INFOTECH LTD. AT SL.NO.11 FAILS THE TPOS OWN FILTER OF 25% EMPLOYEE COST AS HELD IN NXP SEMICONDUCTORS INDIA P. LTD. (SUPRA) [PARAS 20 TO 21] AS ALSO IN VIEW OF ITS RPT EXCEEDING 15% OF SALES A S HELD IN 24/7 CUSTOMER COM PVT. LTD. (SUPRA) . HENCE THE ASSESSEE SUBMITTED THAT REMAINING 7 COMPARABLES WOULD BE AS FOLLOWS:- 12. IT WAS FURTHER SUBMITTED THAT NCP MARGIN OF ASS ESSEE OF 10% WOULD BE WITHIN THE +/- 5% RANGE OF ARITHMETIC MEAN AND H ENCE TP ADJUSTMENT MADE BY THE TPO HAS TO BE SET ASIDE. THE ASSESSEE ALSO SUBMITTED A CHART OF +/- 5% O THE NET MARGIN OF THE ASSESSEE FO R SOFTWARE DEVELOPMENT SERVICES AS FOLLOWS:- ITA NO.912/BANG/2011 PAGE 8 OF 16 13. FROM THE CHART, WE FIND ON ACCEPTANCE OF THE 7 COMPARABLES SELECTED BY THE ASSESSEE, ARITHMETIC MEAN OF 10.37% WOULD PLACE THE ASSESSEE IN A SITUATION WHERE THE TP ADJUSTMENT WOU LD BECOME NIL. SINCE WE FIND THAT THE COMPARABLES WORKED OUT BY THE ASSE SSEE ARE ACCEPTABLE AND THE REJECTION OF COMPARABLES MADE BY THE ASSESS EE FROM OUT OF COMPARABLES SELECTED BY THE TPO ARE JUSTIFIED, WE D IRECT THE TPO TO PASS AN ORDER ACCORDINGLY TAKING ARITHMETIC MEAN OF THE ASSESSEE AT 10.37%. THE ISSUE ON TP ADJUSTMENT WITH RESPECT TO SOFTWARE DEVELOPMENT SERVICES IS SET ASIDE FOR STATISTICAL PURPOSES. TP ADJUSTMENT IN RESPECT OF MARKETING SUPPORT SERVI CES 14. THE OPERATING INCOME WAS AT RS.33,50,29,288 AND THE OPERATING PROFIT WAS AT RS.3,04,57,209 WITH OPERATING/NET MAR GIN OF 10% DECLARED BY THE ASSESSEE. THE ASSESSEE SELECTED THE FOLLOWING COMPARABLES FOR MARKETING SUPPORT SERVICES:- SL. NO. NAME OF THE COMPANY MARK UP ON COST (WEIGHTED AVERAGE) 1 EMPIRE INDUSTRIES LTD. 9.24% 2 IL & FS ACADEMY FOR INSURANCE & FINANCE LTD. 2.92 % 3 INDIACOM LTD. 12.94% ITA NO.912/BANG/2011 PAGE 9 OF 16 4 MCS LTD. 13.65% 5 NSIC LTD. - 3.78% 6 TSR DARASHAW LTD. 15.38% ARITHMETIC MEAN 8.39% 15. AFTER APPLYING THE FILTERS, THE TPO SELECTED TH E FOLLOWING COMPARABLES:- 16. THE ARITHMETIC MEAN OF THE ASSESSEE WAS AT 8.39 %, WHEREAS THAT OF THE TPO WAS AT 30.57%. THE ASSESSEE SUBMITTED THAT THE COMPARABLE, ICC INTERNATIONAL AGENCIES LTD. SHOULD BE REJECTED AS FUNCTIONALLY DISSIMILAR AND RELIED ON THE DECISION OF THIS TRIBUNAL IN THE CASE OF LOGICA PVT. LTD. IT WAS SUBMITTED THAT ON EXCLUSION OF THIS COMPARABLE, THE FINAL SET OF COMPARABLES WILL BE AS FOLLOWS:- 17. THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT ASSESSEES NCP MARGIN OF 10% WOULD BE WITHIN THE +/- 5% RANGE OF A RITHMETIC MEAN AND ITA NO.912/BANG/2011 PAGE 10 OF 16 THUS THE TP ADJUSTMENT MADE BY THE TPO SHOULD BE SE T ASIDE. WE ACCEPT THE COMPARABLES SELECTED BY THE ASSESSEE INASMUCH A S ONLY ONE COMPARABLE SELECTED BY THE TPO VIZ., ICC INTERNATIO NAL AGENCIES LTD. WAS POINTED OUT BY THE ASSESSEE AS FUNCTIONALLY DISSIMI LAR. THE ARITHMETIC MEAN OF OTHER THREE COMPARABLES VIZ., ACCESS GLOBAL SOLUTIONS LTD., PRIYA INTERNATIONAL LTD. AND EMPIRE INDUSTRIES LTD. IS AT 14.54%. THE ASSESSEES NCP MARGIN BEING 10%, WOULD BE WITHIN THE +/- 5% RA NGE. HENCE, WE ARE OF THE OPINION THAT THE CLAIM OF THE ASSESSEE HAS T O BE ALLOWED. WE THEREFORE DIRECT THE TPO/AO TO REDO THE ASSESSMENT ACCORDINGLY. 18. THE NEXT ISSUE IS WITH REGARD TO THE DISALLOWAN CE OF DEDUCTION CLAIMED ON ADVANCES WRITTEN OFF. THE BRIEF FACTS ARE THAT THE ASSESSEE HAD ENTERED INTO A LEASE DEED DATED 19.04.2006 WITH M/S HABITAT INDIA FOR LEASE OF A PREMISES SITUATED IN NEW DELHI FOR A LEASE PER IOD OF 3 YEARS EXTENDABLE BY 3+3 YEARS BY MUTUAL CONSENT. THE OBJE CTIVE OF TAKING THE PREMISES ON LEASE WAS TO SET-UP AND OPERATE AN OFFI CE IN DELHI. SUBSEQUENTLY IN SEPTEMBER 2006, THE ASSESSEE ENTERE D INTO AN AGREEMENT WITH M/S. SPACE MATRIX DESIGN CONSULTANTS P. LTD., AN INTERIOR DESIGNING FIRM, FOR DESIGNING THE OFFICE LAYOUT AND IMPLEMENT ATION OF THE SAME. AS PER THE AGREEMENT, SPACE MATRIX WAS TO PROVIDE THE FOLL OWING SERVICES TO AUTODESK: A. PLAN PRELIMINARY SPACE AT THE PREMISES B. DEVELOP DESIGN CONCEPTS AND PREPARE DRAWINGS ITA NO.912/BANG/2011 PAGE 11 OF 16 C. CONSTRUCT ENVISAGED CONCEPTS AT THE PREMISES. 19. DURING THE FINANCIAL YEAR 2006-07, BASED ON THE WORK DONE IN THE PREMISES, SPACE MATRIX HAD RAISED SEVERAL INVOICES AGGREGATING TO RS. 80,73,695/- WHICH WAS DULY PAID BY THE ASSESSEE. PE NDING COMPLETION OF THE WORK, THE ASSESSEE HAD RECORDED THE PAYMENTS AS ADVANCES PAID TO SPACE MATRIX. IN NOVEMBER 2006, BEFORE THE WORK CO ULD BE COMPLETED BY SPACE MATRIX, THE PREMISES IN QUESTION WAS SEALED B Y THE GOVERNMENT PURSUANT TO THE ORDER OF THE HONBLE DELHI HIGH COU RT AS THE PREMISES WAS NOT IN CONFORMITY WITH THE APPLICABLE LAND-USE LAWS . ACCORDINGLY, EVEN THOUGH THE SPACE MATRIX HAS COMPLETED A SIGNIFICANT PART OF ITS WORK, THE ASSESSEE HAD TO PREMATURELY STOP THE DESIGNING OF T HE PREMISES AND TERMINATE THE CONTRACT WITH SPACE MATRIX. ACCORDING LY, IT WROTE OFF THE ADVANCES IN ITS BOOKS OF ACCOUNT. 20. FOR THE ASSESSMENT YEAR IN QUESTION, THE ASSESS EE CLAIMED A DEDUCTION OF THE SAID AMOUNT OF RS. 80,73,695/- BEI NG ADVANCES WRITTEN OFF DEBITED TO THE P & L ACCOUNT. THE ASSESSING OFFICER IN THE ASSESSMENT ORDER HAS DISALLOWED THE SAID DEDUCTION ON THE GROU ND THAT THE PAYMENTS WERE TOWARDS CREATION OF A CAPITAL ASSET PROVIDING ENDURING BENEFIT TO THE ASSESSEE AND THEREFORE THE EXPENSES WERE CAPITAL IN NATURE. 21. THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE PAYMENTS MADE TO SPACE MATRIX REPRESENTS EXPENDITURE INCURRED WHO LLY AND EXCLUSIVELY IN ITA NO.912/BANG/2011 PAGE 12 OF 16 THE COURSE OF THE BUSINESS, NOT BEING IN THE NATURE OF CAPITAL EXPENDITURE. FURTHER, THE EXPENDITURE WAS INCURRED FOR MORE EFFI CIENT CONDUCT OF THE ONGOING BUSINESS OF THE ASSESSEE AND WOULD THEREFOR E BE REVENUE EXPENDITURE. MOREOVER, THE ADVANCES WERE NOT MADE F OR THE PURPOSES OF ACQUISITION OF CAPITAL ASSET AND THE SERVICES PROVI DED BY SPACE MATRIX DID NOT ALSO PROVIDE ANY BENEFIT OF AN ENDURING NATURE, GIVEN THE FACT THAT THE ASSESSEE WAS NOT ABLE TO OPERATE OUT OF THE PREMISE S IN QUESTION ULTIMATELY. MOREOVER, WHEN THE EXPENDITURE IS INCUR RED IN RELATION TO A LEASED PROPERTY, THE LEASE BEING FOR A SHORT PERIOD OF THREE YEARS, NO ASSET CAN BE SAID TO HAVE COME INTO EXISTENCE. IT WAS THU S SUBMITTED THAT THE ADVANCES WRITTEN OFF OF RS. 80,73,695/- OUGHT TO BE ALLOWED AS A DEDUCTION UNDER SECTION 37 OF THE ACT. 22. WITHOUT PREJUDICE, AND IN THE ALTERNATIVE, IT W AS SUBMITTED THAT THE ASSESSEE WAS REMUNERATED ON A COST PLUS 10% BASIS B Y ITS ASSOCIATED ENTERPRISE DURING THE ASSESSMENT YEAR IN QUESTION. THE COST BASE INCLUDED THE AMOUNT OF ADVANCES WRITTEN OFF AND THEREFORE TH E REVENUE RECEIVED BY THE ASSESSEE AS 10% OF THE SAID COST BASE WAS ALSO OFFERED TO TAX BY THE ASSESSEE, WHICH WAS ACCEPTED BY THE ASSESSING OFFIC ER. IN INCLUDING THE SAID AMOUNT IN THE COST BASE AND AT THE SAME TIME D ISALLOWING THE SAID AMOUNTS AS A DEDUCTION FOR THE PURPOSES OF SECTION 37 OF THE ACT, IT WAS SUBMITTED THAT THE AO HAS CONTRADICTED HIS OWN POS ITION. CONSIDERING THE ABOVE, IT WAS SUBMITTED THAT IN THE EVENT THAT IT I S HELD THAT THE AFORESAID AMOUNT OF RS. 80,73,695/- IS CAPITAL EXPENDITURE, T HEN THE SAME OUGHT TO ITA NO.912/BANG/2011 PAGE 13 OF 16 STAND EXCLUDED FROM THE COST BASE WHILE COMPUTING T HE PROFIT MARGIN OF THE ASSESSEE FOR TRANSFER PRICING PURPOSES. 23. THE LD. COUNSEL FOR THE ASSESSEE FURTHER RELIED ON THE DECISION OF HONBLE HIGH COURT OF KARNATAKA IN THE CASE OF CIT V. INFOSYS TECHNOLOGIES LTD. (NO.2),, 349 ITR 588 (KARN) AND POINTED OUT THAT THE LEASE IS ONLY FOR THREE YEARS WITH NO CERTAINTY OF FURTHER EXTENSION AND THE ASSESSEE DID NOT OCCUPY THE PREMISES FOR THE EXPENDITURE TO BE TREAT ED AS REVENUE EXPENDITURE. THE LD. COUNSEL FOR THE ASSESSEE ALSO RELIED ON THE DECISION OF THIS TRIBUNAL IN THE CASE OF ASERA SOFTWARE (INDIA) PVT. LTD., ITA NO. 1179/BANG/2009. HE GAVE A NOTE OF THE DETAILS OF PAYMENTS MADE BY THE ASSESSEE TO M/S. SPACE MATRIX DESIGN CONSULTANTS P. LTD., WHICH CONTAINED THE DATE OF INVOICES FOR THE SERVICES PRO VIDED. 24. THE LD. DR VEHEMENTLY OPPOSED THE CLAIM OF EXPE NDITURE AS REVENUE EXPENDITURE AND STATED THAT THE NUMBER OF YEARS WER E TOTALLY 9 YEARS AND THE VERY NATURE OF EXPENDITURE IS CAPITAL AND THERE FORE IT COULD ONLY BE TREATED AS CAPITAL LOSS. 25. IN THE REJOINDER, THE LD. COUNSEL FOR THE ASSES SEE POINTED OUT TO THE LEASE DEED AT PAGE 934 OF THE PAPERBOOK AND SUBMITT ED THAT THERE WAS ONLY AN OPTION FOR RENEWAL OF THE LEASE AND THE ASS ESSEE HAD NOT OCCUPIED THE PREMISES AT ALL. ITA NO.912/BANG/2011 PAGE 14 OF 16 26. WE HAVE HEARD BOTH THE PARTIES. WE FIND THAT TH E PREMISES HAS BEEN TAKEN ON LEASE BY THE ASSESSEE AND INTERIOR DESIGN WORKS WERE CARRIED OUT FOR THE PURPOSE OF BUSINESS TO CREATE AMBIENCE. TH E VERY FACT THAT THE PREMISES WAS TAKEN ON LEASE FOR 9 YEARS WITH A RENE WAL CLAUSE WOULD NOT ITSELF MAKE IT A CAPITAL EXPENDITURE, WHEN THE FACT REMAINS THAT THE ASSESSEE HAD PREMATURELY STOPPED THE DESIGNING WORK OF THE PREMISES AND TERMINATED THE CONTRACT WITH M/S. SPACE MATRIX DESI GN CONSULTANTS P. LTD. IT WAS BROUGHT TO OUR NOTICE THAT THE PREMISES WAS SEALED BY THE COURT PURSUANT TO THE ORDER OF THE DELHI HIGH COURT AS TH E PREMISES WAS NOT IN CONFORMITY WITH THE APPLICABLE LAND USE LAWS. IT IS A FACT THAT THE ADVANCES WERE WRITTEN OFF AS THE ASSESSEE WAS NOT ABLE TO OP ERATE OUT OF THE PREMISES AND HENCE THE SAME IS ALLOWABLE AS A DEDUC TION U/S. 37 OF THE ACT. THE EXPENDITURE HAS BEEN INCURRED FOR THE PUR POSE OF THE BUSINESS AND IN THE COURSE OF BUSINESS AND IS CLEARLY A REVE NUE EXPENDITURE. THEREFORE THIS ISSUE RAISED BY THE ASSESSEE IS ALLO WED. 27. THE HONBLE APEX COURT IN THE CASE OF EMPIRE JUTE CO. LTD. V. CIT, 124 ITR 1 (SC) HAS HELD AS FOLLOWS:- (I) IT IS NOT A UNIVERSALLY TRUE PROPOSITION THAT WHAT MAY BE A CAPITAL RECEIPT IN THE HANDS OF THE PAYEE MUST NECE SSARILY BE CAPITAL EXPENDITURE IN RELATION TO THE PAYER. THE F ACT THAT A CERTAIN PAYMENT CONSTITUTES INCOME OR CAPITAL RECEI PT IN THE HANDS OF THE RECIPIENT IS NOT MATERIAL IN DETERMINI NG WHETHER THE PAYMENT IS REVENUE OR CAPITAL DISBURSEMENT QUA THE PAYER. (II) THERE MAY BE CASES WHERE EXPENDITURE, EVEN IF INCURRED FOR OBTAINING AN ADVANTAGE OF ENDURING BENEFIT, MAY , NONE THE LESS, BE ON REVENUE ACCOUNT AND THE TEST OF ENDURIN G BENEFIT MAY ITA NO.912/BANG/2011 PAGE 15 OF 16 BREAK DOWN. IT IS NOT EVERY ADVANTAGE OF ENDURING N ATURE ACQUIRED BY AN ASSESSEE THAT BRINGS THE CASE WITHIN THE PRINCIPLE LAID DOWN IN THIS TEST. WHAT IS MATERIAL TO CONSIDE R IS THE NATURE OF THE ADVANTAGE IN A COMMERCIAL SENSE AND IT IS ON LY WHERE THE ADVANTAGE IS IN THE CAPITAL FIELD THAT THE EXPENDIT URE WOULD BE DISALLOWABLE ON AN APPLICATION OF THIS TEST. IF THE ADVANTAGE CONSISTS MERELY IN FACILITATING THE ASSESSEE'S TRAD ING OPERATIONS OR ENABLING THE MANAGEMENT AND CONDUCT OF ASSESSEE'S B USINESS TO BE CARRIED ON MORE EFFICIENTLY OR MORE PROFITABILIT Y WHILE LEAVING THE FIXED CAPITAL UNTOUCHED, THE EXPENDITURE WOULD BE ON REVENUE ACCOUNT, EVEN THOUGH THE ADVANTAGE MAY ENDURE FOR A N INDEFINITE FUTURE. THE TEST OF ENDURING BENEFIT IS, THEREFORE, NOT A CERTAIN OR CONCLUSIVE TEST AND IT CANNOT BE APPLIED BLINDLY AN D MECHANICALLY WITHOUT REGARD TO THE PARTICULAR FACTS AND CIRCUMST ANCES OF A GIVEN CASE. (III) WHAT IS AN OUTGOING OF CAPITAL AND WHAT IS O UTGOING AN ACCOUNT OF REVENUE DEPENDS ON WHAT THE EXPENDITURE IS CALCULATED TO EFFECT FROM A PRACTICAL AND BUSINESS POINT OF VI EW RATHER THAN UPON THE JURISTIC CLASSIFICATION OF THE LEGAL RIGHT S, IF ANY, SECURED, EMPLOYED OR EXHAUSTED IN THE PROCESS. THE QUESTION MUST BE VIEWED IN THE LARGER CONTEXT OF BUSINESS NECESSITY OR EXPEDIENCY. 28. IN THE RESULT, THE APPEAL IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. PRONOUNCED IN THE OPEN COURT ON THIS 30 TH DAY OF SEPTEMBER, 2015. SD/- SD/- ( ABRAHAM P. GEORGE ) (ASHA VIJAYARAGHAVAN ) ACCOUNTANT MEMBER JUDICIAL M EMBER BANGALORE, DATED, THE 30 TH SEPTEMBER, 2015. /D S/ ITA NO.912/BANG/2011 PAGE 16 OF 16 COPY TO: 1. APPELLANT 2. RESPONDENTS 3. CIT 4. CIT(A) 5. DR, ITAT, BANGALORE. 6. GUARD FILE BY ORDER ASSISTANT REGISTRAR / SENIOR PRIVATE SECRETARY ITAT, BANGALORE.