Haryana Warehousing Corporation v. Assistant Commissioner Of Income Tax

-1- IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH ITA No. 317 of 2008 Date of Decision: 20.4.2011 Haryana Warehousing Corporation Versus Assistant Commissioner of Income Tax ....Appellant. ...Respondent. CORAM:-HON'BLE MR. JUSTICE ADARSH KUMAR GOEL.HON'BLE MR. JUSTICE AJAY KUMAR MITTAL. PRESENT: Mr. Rajesh Garg, Advocate for the appellant.Mr. Yogesh Putney, Senior Standing Counsel,for the respondent. AJAY KUMAR MITTAL, J. 1.This Court on 17.10.2008 admitted the appeal fordetermination of question No. (iv) which is as under:- “(iv)Whether the Income Tax Appellate Tribunalwas right in law in disallowing the expenditure ofRs.1,00,06,000/- incurred on Information &Technology training connected with the business ofthe Corporation as business expenditure and on theprinciple of commercial expediency?” 2.Put shortly, the facts necessary for disposal as narrated inthe appeal are that the assessee filed its return for the assessment year 2001-02 on 29.10.2001 declaring nil income claiming the entire incomeincluding the income from wheat and paddy trading as agent of theGovernment and Food Corporation of India (FCI) as exempt underSection 10(29) of the Income Tax Act, 1961 (in short “the Act”). It wasfurther claimed that if it was held that part of income was liable to taxand part was exempt under Section 10(29) of the Act, then entireindivisible expenses had to be deducted from the taxable income. Theassessee had also claimed an expenditure of Rs.1,00,06,000/- underthe head “Information and Technology” on the ground that the amountwas given to the Government of Haryana for development ofInformation and Technology for constitution of “Information TechnologyInitiation Fund” for e-governance to promote technology and theemployees of the assessee got training at the said centre formodernizing the working of the Corporation. The Assessing Officer videorder dated 12.2.2004 disallowing the claims of the assessee alsotreated the expenditure on “Information and Technology” not forbusiness expediency and disallowed the same. In appeal filed by theassessee, the Commissioner of Income Tax (Appeals) [hereinafterreferred to as ”the CIT(A)”] vide order dated 30.11.2004 allowed theappeal partly. The CIT(A) held that the assessee was entitled todeduction of entire indivisible expenses from taxable income. However,the CIT(A) held the expenditure on “Information and Technology” to becapital expenditure and, thus, not allowable. On further appeal, theTribunal vide order dated 20.7.2007 upheld the order of the CIT(A) anddismissed the appeal on this issue. Hence, the present appeal by theassessee. 3.We have heard learned counsel for the parties. 4.Learned counsel for the assessee submitted that theexpenditure incurred on information and technology training wasconnected with the business of the Corporation and there existedcommercial expediency and under the provisions of Section 37 of theAct, the same was allowable as deduction. The CIT(A) and the Tribunalhad erred in treating the same to be of enduring nature and, thus,treated it to be capital expenditure. Learned counsel for the assesseerelied upon the judgments of this Court in Commissioner of Income-Tax v. Varinder Agro Chemicals Limited [2009] 309 ITR 272 (P&H)and The Chief Commissioner of Income-Tax (OSD), Faridabad v.M/s O.K. Play India Ltd. (ITA No. 414 of 2008) decided on 25.2.2011in support of his submission where the expenses on softwaredevelopment were held to be revenue expenditure. 5.Learned counsel for the revenue, on the other hand,supported the order passed by the Tribunal. 5.Learned counsel for the revenue, on the other hand,supported the order passed by the Tribunal. 6.After giving our thoughtful consideration to the respectivesubmissions of learned counsel for the parties, we find that the Tribunalwas in error in holding that the expenditure on account of informationand technology training was not admissible. This Court in VarinderAgro Chemicals Limited's case (supra) considering the expenditurespent on computer software observed that the software which was usedby the assessee was not of enduring nature and that the same wouldbecome outdated soon. It was further observed that the technology isfast changing and day-by-day systems are being developed in a newway, in which software is required as a raw material. In such a situation ITA No. 317 of 2008 -4- computer software expenses were held to be revenue in nature anddeductible as such. Following the aforesaid decision, similar view wastaken by this Court in M/s O.K. Play India Ltd's case (supra). Thus, itis held that the said expenditure was directly connected with thebusiness of the assessee and was, therefore, eligible for deductionunder Section 37 of the Act on the principle of commercial expediency.7.Accordingly, the question of law is answered in favour ofthe assessee and against the revenue. The appeal stands allowed. (AJAY KUMAR MITTAL) JUDGE April 20, 2011gbs (ADARSH KUMAR GOEL)JUDGE