Commissioner Of Income Tax-L, Ludhiana v. M/S Upper India Steel Mfg. And Engg. Co. Ltd

ITA No. 151 of 2005 =|. IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH IITA No. 151 of 2005 Date of Decision: 8./.2014 | Commissioner of Income Tax-l, Ludhiana ...Appellant Versus M/s Upper India steel Mfg. and Engg. Co. Ltd. ... Respondent CORAM:-HON BLE MR. JUSTICE AJAY KUMAR MITTAL.HON BLE MR. JUSTICE JASPAL SINGH. PRESENT: Mr. Rajesh Katocn, Advocate for the appellant, Mr. S.K. Mukhi, Advocate for the respondent. AJAY KUMAR MITTAL, J. 1.This appeal has been filed by the revenue under Section260A of the Income Tax Act, 1961 (in short “the Act’) against the orderdated 11.10.2004 (Annexure A-IIIl) passed by the Income Tax AppellatTribunal, Chandigarh Bench “B’, Chandigarh (hereinafter referred to as‘the Tribunal’) for the assessment year 1997-98. The appeal wasadmitted vide order dated 9.10.2006 for determination of the followingsubstantial questions of law:- aD)Whether on the facts and the circumstances ofthe case, the Honble Income lax Appellatethe case, the Honble Income lax Appellate Tribunal was justified in reversing the action of the CIT(A) by ignoring the fact that one timeexpenditure incurred for the Club Membershipexpenditure incurred for the Club Membership ITA No. 151 of 2005 =2= Fee Is of a capital nature? II)VVnetner on tne facts and the circumstances othe case, the Honble Income flax AppellateTribunal was justified in reversing the order ofthe CIT by ignoring the facts that expensesincurred on ISO 9002 Certificate is a ‘capitalexpenditure naving Its characteristics enduringIn nature and its benefits are for the years tocome’the case, the Honble Income flax AppellateTribunal was justified in reversing the order ofthe CIT by ignoring the facts that expensesincurred on ISO 9002 Certificate is a ‘capitalexpenditure naving Its characteristics enduringIn nature and its benefits are for the years tocome’ iil)Whether on the facts and the circumstances ofthe case, the Honble Income lax AppellateTribunal was justified in entertaining the claim ofthe assessee, Tiled after the expiry of the periodstipulated under the provision of section 139(5)of the |.T. Act?the case, the Honble Income lax AppellateTribunal was justified in entertaining the claim ofthe assessee, Tiled after the expiry of the periodstipulated under the provision of section 139(5)of the |.T. Act? D Put shortly, the facts necessary for disposal of the presentappeal as mentioned therein are that the assessee filed its return ofincome on 31.12.1997 for the assessment year 1997-98 declaring netincome at S|1,36,51,/30/-. The said return was processed undersection 143(1)(a) of the Act on 31.33.1998. Subsequently, the return wasrevised on 23.3.1999 claiming unabsorbed depreciation anda the samwas filed at an Income of.S|75,17,109/-. The Assessing Officer videorder dated 18.1.2000 (Annexure A-1) assessed the income at=8/7,27,344/-. Feeling aggrieved, the assessee filed an appeal before theCommissioner of Income Tax (Appeals) [for brevity “the CIT(A)]. TheCIT (A) vide order dated 19.10.2000 (Annexure A-II) partly allowed theappeal. Still dissatisfied, the assessee filed an appeal before the ITA No. 151 of 2005 a Tridunal who vide order dated 11.10.2004 (Annexure A-Iil) partly allowedthe appeal. Hence, tne present appeal by the revenue. 3)Learned counsel for the revenue submitted that one timeexpenditure incurred for the club membership fee was capital in natureand, therefore, the Tribunal had erred in holding the same as revenueexpenditure. It was further submitted that the expenses incurred on ISO9002 Certificate was also capital in nature as the same was enduring Innature and Its benefit was to accrue for the years to come and theTribunal had wrongly allowed the same to the assessee. According tothe learned counsel for the revenue, the assessee had not made anyclaim with regard to the bad debts while filing the revised return undersection 139(5) of the Act and, therefore, the Tribunal had wronglyremanded the case to the Assessing Officer. 3)Learned counsel for the revenue submitted that one timeexpenditure incurred for the club membership fee was capital in natureand, therefore, the Tribunal had erred in holding the same as revenueexpenditure. It was further submitted that the expenses incurred on ISO9002 Certificate was also capital in nature as the same was enduring Innature and Its benefit was to accrue for the years to come and theTribunal had wrongly allowed the same to the assessee. According tothe learned counsel for the revenue, the assessee had not made anyclaim with regard to the bad debts while filing the revised return undersection 139(5) of the Act and, therefore, the Tribunal had wronglyremanded the case to the Assessing Officer. 4 On the other hand, learned counsel for the assesseebesides supporting the order passed py the Iribunal pleaded thatquestion No. (i) stands concluded against the revenue by this Court in aFull Bench judgment dated 24.1.2013 passed In-ITA No. 366 of 2008(The Commissioner of Income Tax, Patiala v. M/s Groz Beckert AsiaLimited)|whereas question No. (ii) was decided against the revenue bythis Court vide judgment dated 22.12.2006 passed inITA No. 424 of2005 (Commissioner of Income Tax v. M/s Varinder Agro ChemicalsLtd., Ludhiana). With regard to question No. (ili), learned counsel forthe assessee submitted that the matter was remanded to the AssessingOfficer holding that if the assessee's claim was as per law on merit, thenthe same be allowed to the assessee. 5 After hearing learned counsel for the parties, we do not findany merit in this appeal. ITA No. 151 of 2005=4. 6.Adverting to first question relating to nature of one timeexpenditure incurred for the Cluo Membership fee, the Full Bench of thisCourt InM/s Groz Beckert Asia Limited'scase (supra) had held thatthe corporate membersnip which was obtained for running the businesswith a view to produce profit would amount to revenue expenditure. Itwas also noticed that sucn an expenditure does not bring into existencean asset or an advantage for the enduring benefit of a trade. It wasrecorded as under:- *16. In the present case, the nature of the expenditureincurred by the assessee cannot be said to be a capitalexpenditure. [ne second test culleaq down inAssamBengal Cement Co. Limited‘S case (supra)is. tnaexpenditure should bring Into existence |an asset or anaavantage for the enduring benefit of a trade. In tne presentcase, tne corporate membership of Rs.6 lacs was for alimited period of 5 years. The corporate membersnip wasobtained for running the business witn a view to produceprofit. Such membership does not bring into existence anasset or an advantage for the enduring benefit of thebusiness. It is an expenditure incurred for the period ofmembership and is not long lasting. By subscribing to themembership of a club, no capital asset is created or comesinto existence. By sucn membership, a privilege to usefacilities of a club alone, are conferred on the assessee andthat too for a limited period. Such expenses are for runningthe business with a view to produce the benefits to theassessee. Consequently, it cannot be treated as capitalasset. Therefore, the reasoning given by Delhi, Bombay andGujarat High Courts in respect of members of Clubs isbased upon correct enunciations of the principles of law asdelineated above in the judgments of the Supreme Court.| f. The Tribunal had decided the issue by following the decision ITA No. 151 of 2005=5- f. The Tribunal had decided the issue by following the decision ITA No. 151 of 2005=5- of the Delni High Court in-CIT vs. Engineering india Limited,(1999)239 ITR 237 which has been followed by the Full Bench of this Court inM/s Groz Beckert Asia Limited'scase (supra). [he first question Isthus answered against tne revenue.8.Taking up question No.(il), the issue regarding expenditureIncurred on account of expenses for ISO 90Q2 certificate was neld to berevenue expenditure by this Court inCommissioner of Income Tax I,Ludhiana vs. M/s Varinder Agro Chemicals Limited, 85, IndustrialArea A, Ludhiana» ITA No.424 of 2005, decided on 22.12.2006 relyingupon judgments of the Apex Court In|Empire Jute Co. Limited vs. CiT(1980) 124 ITR 1 and ©ommissioner of Income fax, Bombay City Ivs. Associated Dement Companies Limited,(1988) 172 ITR 25/7Accordingly, question No.(ii) is also answered against the revenue.QOAs regards question No.(Ill), aS noticed above, the matterhas been remanded to the Assessing Officer to adjudicate theassessee's claim on merits in accordance with law. In view of theremand, the issue being referred back to the Assessing officer, thequestion stands disposed of. 10.In view of the above, the substantial questions of law aredecided accordingly. Consequently, finding no merit in the instantappeal, the same Is hereby dismissed. (AJAY KUMAR MITTAL) JUDGE July 8, 2014 gbs (JASPAL SINGH)JUDGE