Commissioner Of Income Tax, Faridabad v. M/S Heena Export Corporation

ITA No. 607 of 2010 IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH Commissioner of Income Tax, Faridabad Versus M/s Heena Export Corporation ITA No. 607 of 2010 Date of Decision: 31.1.2011 ....Appellant. ...Respondent. CORAM:-HON'BLE MR. JUSTICE ADARSH KUMAR GOEL.HON'BLE MR. JUSTICE AJAY KUMAR MITTAL. PRESENT: Ms. Urvashi Dhugga, Advocate for the appellant. AJAY KUMAR MITTAL, J. 1.This order shall dispose of ITA Nos. 607 and 608 of 2010as they arise from common order of the Tribunal dated 16.7.2009 andinvolve similar questions of law. For brevity, the facts are beingextracted from ITA No. 607 of 2010. 2.This appeal has been filed by the revenue under Section260A of the Income Tax Act, 1961 (in short “the Act”) against the orderdated 16.7.2009 passed by the Income Tax Appellate Tribunal, DelhiBench “C”, New Delhi, in ITA No. 2212/Del/2008 for the assessmentyear 2001-02, claiming the following substantial questions of law:- “I.Whether on the facts and in the circumstances of thecase, the Ld. ITAT was right in law in upholding theorder of the Ld. CIT (A) to the effect that thecase, the Ld. ITAT was right in law in upholding theorder of the Ld. CIT (A) to the effect that the expenditure of Rs.2,19,466/- is revenue expenditureto be allowed u/s 37(1) of the Income Tax Act, 1961even though the payments may be enduring benefitto the assessee firm for the period of 5 years asclaimed by the assessee? II. Although tax involved is Rs.82,146/- which is lessthan the monetary limits laid down by the CBDT'sInstructions No. 5/2008 dated 15,.05.2008 issued u/s268A of the Income Tax Act, 1961, yet the appeal isbeing filed as per para 5 of the said Instructionbecause it is a case of composite order of the ITATwhich involved Asstt. Years 2001-02 and 2004-05and tax effect involved in one year i.e. in Asstt. Year2004-05 [Rs.4,33,030/-] which is more than themonetary limits prescribed in para 3 of the saidInstruction?” 3.Briefly stated, the facts necessary for adjudication asnarrated in the appeal are the assessee filed its return on 28.9.2001 forthe assessment year 2001-02 declaring an income of Rs.5,65,491/-.The assessment was completed on 5.12.2006 making some additionsby the Assessing Officer. Against the order of the Assessing Officer, theassessee preferred an appeal before the Commissioner of Income Tax(Appeals) [in short “the CIT (A)”] who while partly allowing the appealgave a relief of Rs.9,67,520/- to the assessee. Feeling aggrieved, thedepartment took the matter in appeal before the Tribunal and theTribunal vide its order dated 16.7.2009 upheld the view of the CIT(A) and dismissed the appeal. Hence, the present appeal by the revenue. 4.We have heard learned counsel for the appellant. 5.The point for consideration in this appeal is whether theexpenses incurred on construction of tennis court are allowable as revenue expenses or are capital in nature. 6.The Assessing Officer had disallowed the expenditureincurred on construction of tennis court by holding the same to becapital in nature, as according to him, the benefit of enduring nature hadbeen evolved and, therefore, not admissible in the year underconsideration. However, the CIT(A) while allowing the appeal of theassessee had held in para 8.4 of its order as under:- and dismissed the appeal. Hence, the present appeal by the revenue. 4.We have heard learned counsel for the appellant. 5.The point for consideration in this appeal is whether theexpenses incurred on construction of tennis court are allowable as revenue expenses or are capital in nature. 6.The Assessing Officer had disallowed the expenditureincurred on construction of tennis court by holding the same to becapital in nature, as according to him, the benefit of enduring nature hadbeen evolved and, therefore, not admissible in the year underconsideration. However, the CIT(A) while allowing the appeal of theassessee had held in para 8.4 of its order as under:- “8.4. I have carefully considered the submissions of theLd. A.R. and perused the order of re-assessment as well asother documents on record. The Ld. A.R. has made fresharguments regarding the AO's action for the disallowanceof the above expenditure u/s 35D. She has brought to mynotice that there is no such evidence on records regardingthe amortization of such expenditure u/s 35D either in theProfit & Loss A/c or in the computation of income. Actually,such expenditure was not a preliminary expense asenvisaged in Section 35D and the expenditure was simplyroutine incurred particularly every year and hence was notto be considered u/s 35D, which is the AO's own opinion.As the facts of the case stand, the expenditure is spentupon a tennis court named “Black Rose Tennis Court”,which clearly shows the business title of the appellant firm and hence a revenue expenditure. From the examinationof the documents pertaining to incurring of suchexpenditure, like its letter written to Haryana State SportsComplex, Faridabad for the approval of name of the tenniscourt as “Black Rose Lawn Tennis Court” and otherdocuments pertaining to Syncotts International andHaryana State Sports Complex, Faridabad and DistrictSports Council, Faridabad and the newspaper cuttingsplaces at pages 91, 92 & 93 of the paper book, it becomesquite evident that the appellant firm had no ownership onthis court and it was with the State Administration. Thetennis court came into existence with the brand name of theappellant firm “Black Rose”, and, therefore, it wasexplained to be in the nature of advertisement because theexpenditure itself was borne by the appellant firm for thesake of advertising its brand name Black Rose. Moreover,the expenditure is also not of capital nature as the AO haspointed out because according to him it has an enduringbenefit. As the law now stands, the Apex Court has clearlylaid down its decision in the case M/s Empire Jute MillsLimited versus CIT 124 ITR 1, that the test of benefit ofenduring nature of the expenditure for the purpose ofdetermining it to be capital or revenue is not the sure test,and if the expenditure is incurred in the commercial senseor the interest of commercial expediency, even the benefitmay be enduring, on the facts and circumstances the expenditure is revenue to be allowable u/s 37(1) of the I.T.Act. As is evident from the past history of the present caseas well as clarity of the facts and the circumstances of thecase now brought as above, the expenditure on Black RoseTennis Court by the appellant firm is allowable u/s 37(1) ofthe Act and hence the disallowance of Rs.2,19,466/- isdeleted.” 7.The said finding was upheld by the Tribunal. It wasconcluded that the ownership of the tennis court was not that of theassessee. Further, the assessee in order to promote its brand, hadnamed the tennis court in its brand name. In fact, the ownership vestedwith the State Administration and the nature of expenditure wasrevenue. 8.No error could be pointed out by the learned counsel for therevenue in the findings recorded by the CIT(A) and affirmed by theTribunal which may warrant interference by this Court. Accordingly, nosubstantial question of law arises in these appeals and the same arehereby dismissed. (AJAY KUMAR MITTAL) JUDGE 7.The said finding was upheld by the Tribunal. It wasconcluded that the ownership of the tennis court was not that of theassessee. Further, the assessee in order to promote its brand, hadnamed the tennis court in its brand name. In fact, the ownership vestedwith the State Administration and the nature of expenditure wasrevenue. 8.No error could be pointed out by the learned counsel for therevenue in the findings recorded by the CIT(A) and affirmed by theTribunal which may warrant interference by this Court. Accordingly, nosubstantial question of law arises in these appeals and the same arehereby dismissed. (AJAY KUMAR MITTAL) JUDGE (ADARSH KUMAR GOEL)JUDGE ITA No. 607 of 2010 -6- IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH Commissioner of Income Tax, Faridabad Versus M/s Heena Export Corporation ITA No. 608 of 2010 Date of Decision: 31.1.2011 ....Appellant. ...Respondent. CORAM:-HON'BLE MR. JUSTICE ADARSH KUMAR GOEL.HON'BLE MR. JUSTICE AJAY KUMAR MITTAL. PRESENT: Ms. Urvashi Dhugga, Advocate for the appellant. AJAY KUMAR MITTAL, J. The appeal is dismissed. For reasons, see order of even date passed in ITA No. 607 of 2010 (Commissioner of Income Tax, Faridabad v. M/s Heena Export Corporation). (AJAY KUMAR MITTAL) JUDGE January 31, 2011gbs (ADARSH KUMAR GOEL) JUDGE