Commissioner Of Income Tax Ii, Chandigarh v. M/S Jct Electronics Ltd

IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH. ITA No.676 of 2009Date of decision 14 .1.2010 Commissioner of Income Tax II, Chandigarh.....Appellant Versus M/s JCT Electronics Ltd.... Respondents CORAM:HON'BLE MR. JUSTICE M.M. KUMARHON'BLE MR. JUSTICE AJAY TEWARI Present:Ms. Urvashi Dhugga, Advocate for the appellant 1.To be referred to the Reporter or not ? 2.Whether the judgement should be reported in the Digest ? M.M.KUMAR, J. The Revenue has approached this Court by filing the instantappeal under Section 260A of the Income Tax Act,1961 (for brevity 'theAct') challenging order dated 30.4.2009 passed by the Income TaxAppellate Tribunal, Chandigarh Bench B,Chandigarh (for brevity, theTribunal'). It has been claimed that following substantive question of lawwould arise for determination of this Court: “ Whether on the facts and in the circumstances of the case, theorder of the Tribunal is perverse in treating the expenditure forrestructuring and viability study and preparation ofrestructuring proposal as revenue expenditure whereas theexpenditure is of capital nature which will provide advantage ofenduring nature and is not for enhancing the sales or earningany other income.” In order to appreciate the controversy few facts may be noticed. The ITA 767 of 2009 assessee-company is manufacturing colour picture tubes. In respect of theassessment year 2004-05 the assessee company incurred expenditure for thepurpose of restructuring. The assessee- company had become a sick unit andin that regard a reference was made to BIFER for its rehabilitation whichhas passed an order giving substantial relief on 12.3.2007. The services ofM/s Oberoi Sood and Kapoor, Chartered Accountants were engaged whichresulted in preparation of final restructuring scheme. On account ofassistance rendered by the Chartered Accountants major concession andsubstantial relief was given to the assessee- company. A professionalpayment of Rs. 53,70,000/- was made to the Chartered Accountants and Rs.15,00,000/- were paid to M/s Asset Care Enterprises Ltd.. The aforesaidexpenditure were claimed as expenses for professional services forprocessing of its case before the BIFER. The Assessing Officer opined thatsuch expenditure incurred by the assessee- company for the purpose ofrestructuring would be an advantage of enduring nature. The expenditurehas not been incurred for enhancing sale nor for earning of any income. TheCommissioner of Income Tax (Appeals) also accepted the opinionexpressed by the Assessing Officer. However, the Tribunal on the aforesaidissue held otherwise by observing as under: “................ We are of view that the impugned expenditure wasincurred for enhancing the sales or for earning the income. Wehave found that the impugned expenses were incurred inconformity with the provisions of Section 37 of the Act as thesame were for the purposes of business, therefore, we are of theview it is an allowable deduction. The ratio laid by the Hon'bleMadras High Court in the case of CIT v. South India Sugars Ltd (275 ITR 491)(Mad.) clearly supports the case of theassessee. Reliance can also be placed in B.Nagi Reddy v. CIT(199 ITR 451) (Mad.), consequently, both these grounds of theassessee are allowed.” “................ We are of view that the impugned expenditure wasincurred for enhancing the sales or for earning the income. Wehave found that the impugned expenses were incurred inconformity with the provisions of Section 37 of the Act as thesame were for the purposes of business, therefore, we are of theview it is an allowable deduction. The ratio laid by the Hon'bleMadras High Court in the case of CIT v. South India Sugars Ltd (275 ITR 491)(Mad.) clearly supports the case of theassessee. Reliance can also be placed in B.Nagi Reddy v. CIT(199 ITR 451) (Mad.), consequently, both these grounds of theassessee are allowed.” There is no statutory definition of expression 'capital expenditure'.The Courts have repeatedly held that such expression has to be construed ina business sense save insofar as there may be rules of constructionapplicable to it. The expression occurring in Section 37(1) of the Act makesits meaning more elastic in its application to the facts of each case. This isconsistent view of the Courts. The word 'capital' connotes permanency andcapital expenditure is therefore closely akin to the concept of securingsomething, tangible or intangible property, corporeal or incorporeal right sothat they could be of a lasting or enduring benefit to the enterprise in issue.Revenue nature expenditure, on the other hand, is operational in itsperspective and solely intended for the furtherance of the enterprise. (SeeCIT v.Wolkem (P) Ltd. Co.[2002] 258 ITR 350 (Raj.) Having heard the learned counsel we are of the view that theTribunal has rightly placed reliance on a Division Bench judgement of theMadras High Court in the case of CIT v South India Sugars Ltd. (2005) 275ITR 491. In that case the Division Bench of the Madras High Court hadtaken the view that once the ultimate fact finding authority i.e. the Tribunalhas come to the conclusion that the company had incurred expenditure onlegal, financial and industrial consultation then it could not be said to beoutside the purview of business of the company. Likewise in the presentcase, the conclusion reached by the Tribunal is that the expenditure towardsconsultation charges for restructuring of the company, the amount paid to ITA 767 of 2009 the Chartered Accounts and M/s Asset Care Enterprise Ltd., was incurred orfor earning income. Further finding of the Tribunal is that expenses werealso incurred in conformity with the provisions of Section 37 of the Actwhich was meant for the purposes of business. Therefore, we find that viewtaken by the Tribunal is unexceptionable. As such no question of lawwarranting admission of the appeal would arise much less a substantivequestion. The appeal is wholly without merit and the same is accordinglydismissed. (M.M.Kumar) Judge 14.1.2010okg (Ajay Tewari) Judge