ACIT, New Delhi v. M/s. Oriental Structural Engineers Pvt. Ltd, New Delhi

ITA 4410/DEL/2009 | 2005-2006
Pronouncement Date: 22-01-2010 | Result: Dismissed

Appeal Details

RSA Number 441020114 RSA 2009
Assessee PAN AAACO0054F
Bench Delhi
Appeal Number ITA 4410/DEL/2009
Duration Of Justice 2 month(s) 3 day(s)
Appellant ACIT, New Delhi
Respondent M/s. Oriental Structural Engineers Pvt. Ltd, New Delhi
Appeal Type Income Tax Appeal
Pronouncement Date 22-01-2010
Appeal Filed By Department
Order Result Dismissed
Bench Allotted F
Tribunal Order Date 22-01-2010
Date Of Final Hearing 19-01-2010
Next Hearing Date 19-01-2010
Assessment Year 2005-2006
Appeal Filed On 18-11-2009
Judgment Text
I.T.A. NO. 4410/DEL/2009 1/5 IN THE INCOME TAX APPELLATE TRIBUNAL NEW DELHI BENCH F BEFORE SHRI K D RANJAN ACCOUTANT MEMBER AND SHRI GEORGE MATHAN JUDICIAL MEMBER ITA NO.4410 /DEL/2009 (ASSESSMENT YEAR 2005-06) ACIT CC-7 VS. M/S. ORIENTAL STRUCTURAL ENGINEERS NEW DELHI. PVT. LTD. 21/48 COMMERCIAL COMPLEX MALCHA MARG NEW DELHI-110 021 (APPELLANTS) (RESPONDENTS) PAN / GIR NO. AAACO0054F APPELLANT BY: SMT. SUNITA SINGH SR. DR RESPONDENT BY: SHRI KVSR KRISHNA CA & SHRI AMAN GOEL CA ORDER PER GEORGE MATHAN JM: 1. THIS APPEAL BY THE REVENUE HAS BEEN PREFERRED AG AINST THE ORDER OF LD. CIT(A) XVI NEW DELHI IN APPEAL NO.131/2007-08 DATED 22.07.2009 FOR THE ASSESSMENT YEAR 2005-06. SMT. SUNITA SINGH SR. DR REPRESENTE D FOR THE REVENUE AND SHRI KVSR KRISHNA AND SHRI AMAN GOEL CA REPRESENTED FOR THE REVENUE. 2. IT WAS THE SUBMISSION BY THE LD. D.R. THAT THE A SSESSEE HAD MADE A CLAIM OF EXPENSES OF RS.7.5 LACS EACH FO R TWO PERSONS ON ACCOUNT OF THE CORPORATE MEMBERSHIP I.T.A. NO. 4410/DEL/2009 2/5 TAKING IN DELHI GYMKHANA CLUB. IT WAS THE SUBMISSI ON THAT THE A.O. HAD TREATED THE SAME AS A CAPITAL EXPENDITURE AND THE CIT(A) HAD DELETED THE SAME BY FOLLOWING THE DECISION OF HON'BLE JURISDICTIONAL HI GH COURT IN THE CASE OF SAMTEL COLOUR LTD. IN I.T.A. NO. 1152/DEL/2008 DATED 30.01.2009. SHE VEHEMENTLY SUPPORTED THE ORDER OF THE A.O. 3. IN REPLY THE LD. A.R. SUBMITTED THAT THE CORPORA TE MEMBERSHIP WAS TAKEN FOR THE PURPOSE OF THE BUSINES S ACTIVITIES OF THE ASSESSEE ITSELF AND THE AMOUNT PA ID WAS THE RENEWAL FEE OF THE CORPORATE MEMBERSHIP TAKEN DURING 1993. IT WAS THE SUBMISSION THAT THERE WAS NO ENDURING BENEFIT AND THE ISSUE WAS SQUARELY COVERED BY THE DECISION OF JURISDICTIONAL HIGH COURT IN THE CA SE OF SAMTEL COLOUR LTD. REFERRED TO SUPRA WHEN IT HAS BE EN HELD AS FOLLOWS: 5. HAVING HEARD THE LD. COUNSEL FOR THE REVENUE AS WELL AS HE ASSESSEE WE ARE OF THE VIEW THAT THE IMPUGNED JUDGEMENT OF THE TRIBUNAL DESERVES TO BE UPHELD FOR THE FOLLOWING REASONS:-5.1 THE EXPENDITU RE INCURRED TOWARDS ADMISSION FEE ADMITTEDLY WAS TOWARDS CORPORATE MEMBERSHIP. AS CORRECTLY HELD BY THE TRIBUNAL THE NATURE OF THE EXPENDITURE WAS ONE FOR THE BENEFIT OF THE ASSESSEE. THE BUSINESS PURPOSE BASIS ADOPTED FOR ELIGIBILITY OF EXPENDITURE UNDER SECTION 37 OF THE ACT WAS THE CORRECT APPROACH. TH IS IS MORE SO IN VIEW OF THE TRIBUNALS FINDINGS THAT IT WAS THE ASSESSEE WHICH NOMINATED THE EMPLOYEE WHO WOUL D AVAIL THE BENEFIT OF THE CORPORATE MEMBERSHIP GIVEN TO I.T.A. NO. 4410/DEL/2009 3/5 THE ASSESSEE. 5.2 THE OTHER HURDLE FOR QUALIFICATI ON OF THE EXPENDITURE U/S 37 OF THE ACT IS THAT EXPENDITU RE INCURRED SHOULD NOT BE ON CAPITAL ACCOUNT. THE A.O . CAME TO THE CONCLUSION THAT THE EXPENDITURE WAS OF A CAPITAL NATURE BASED ON A FALLACIOUS REASONING THAT THE EXPENDITURE WAS OF AN ENDURING NATURE AND HENCE ON A CAPITAL ACCOUNT. IT IS WELL SETTLED THAT AN EXPEND ITURE WHICH GIVES ENDURING BENEFIT IS BY ITSELF NOT CONCL USIVE AS REGARDS THE NATURE OF THE EXPENDITURE. WE MAY AD D THAT EVEN LUMP SUM PAYMENT WHICH WAS THE CASE IN T HE INSTANT MATTER IS NOT DECISIVE AS REGARDS THE NATU RE OF THE PAYMENT. SEE OBSERVATIONS IN EMPIRE JUTE CO. L TD. VS CIT; (1980) 124 ITR 1 (S.C.) AS ALSO THE JUDGEME NT OF THE DIVISION BENCH OF THIS COURT IN CIT VS J K SYNTHETICS; ITR NOS. 139/1988 AND 202/1989. THE TR UE TEST FOR QUALIFICATION OF EXPENDITURE UNDER SECTION 37 OF THE ACT IS THAT IT SHOULD BE INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSES OF BUSINESS AND THE EXPENDITURE SHOULD NOT BE TOWARDS CAPITAL ACCOUNT. IN THE INSTANT CASE AS DISCUSSED ABOVE THE ADMISSION FEE PAID TOWARDS CORPORATE MEMBERSHIP IS AN EXPENDITURE INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSES OF BUSINESS AND NOT TOWARDS CAPITAL ACCOUNT AS IT ONLY FACILITATES SMOOTH AND EFFICIENT RUNNING OF A BUSIN ESS ENTERPRISE AND DOES NOT ADD TO THE PROFIT EARNING APPARATUS OF A BUSINESS ENTERPRISE. 5.3 TO SUPPORT THE REVENUES CONTENTION THAT HE IMPUGNED EXPENDITURE I S ON CAPITAL ACCOUNT THE LD. COUNSEL; MS. PREM LATA BANSAL HAS CITED THE JUDGEMENT OF THE FRAMATONE CONNECTOR OEN LTD. VS DCIT; (2006) 157 TAXMAN 116. THE SAID JUDGEMENT IS BASED ON THE HON'BLE SUPREME COURT JUDGEMENT IN THE CASE OF PUNJAB STATE INDUSTR IAL DEVELOPMENT CORPORATION LTD. VS CIT; (1997) 225 ITR 792. THE JUDGEMENT OF THE SUPREME COURT ON WHICH T HE KERALA HIGH COURT HAS RELIED HEAVILY DEALT WITH THE ISSUE WITH REGARD TO FEE PAID TO THE REGISTRAR OF COMPANIES FOR INCREASE OF AUTHORIZED CAPITAL THAT IS I.T.A. NO. 4410/DEL/2009 4/5 WHETHER SUCH AN EXPENSE WAS IN THE NATURE OF REVENU E OR CAPITAL EXPENDITURE. THE SUPREME COURT CAME TO THE CONCLUSION THAT SINCE THE FEE WAS PAID TO THE REGIS TRAR OF COMP0ANIES FOR INCREASE IN THE CAPITAL BASE OF T HE ASSESSEE IT WAS IN THE NATURE OF CAPITAL EXPENDITU RE. ACCORDING TO US THE RATIO OF THE AFORE-MENTIONED SUPREME COURT JUDGEMENT IS NOT APPLICABLE TO THE EXPENSES INCURRED ON AN ADMISSION FEE FOR CORPORATE MEMBERSHIP. WE RESPECTFULLY DISAGREE WITH THE RATIO OF THE JUDGMENT OF THE KERALA HIGH COURT. IN TURN WE RESPECTFULLY FOLLOW THE RATIO OF THE JUDGMENT OF TH E DIVISION BENCH OF THIS COURT IN CIT VS. NESTLE INDI A LTD; (2008) 296 ITR 682 AND THAT OF THE BOMBAY HIGH COURT IN THE CASE OF OTIS ELEVATOR CO. (INDIA) LTD. VS CIT; (1992) 195 ITR 682. HE VEHEMENTLY SUPPORTED THE ORDER OF THE CIT(A). 4. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. WE HAVE ALSO PERUSED THE COPY OF THE LETTER ISSUED BY DELHI GYMKHANA CLUB TO THE ASSESSEE INTIMATING THE RENEWA L OF THE CORPORATE MEMBERSHIP. WE HAVE ALSO PERUSED T HE ORDER OF THE HON'BLE JURISDICTIONAL HIGH COURT IN T HE CASE OF SAMTEL COLOUR LTD. IT WAS NOTICED THAT THE ISSUE IN THIS CASE IS IDENTICAL TO THE FACTS IN THE CASE OF SAMTEL COLOUR LTD. IT IS ALSO NOTICED THAT THE CIT(A) HAS FOLLOWED THE PRINCIPLES OF JUDICIAL DISCIPLINE BY FOLLOWING THE DECISION OF HON'BLE JURISDICTIONAL HI GH COURT IN THE CASE OF SAMTEL COLOUR LTD. IN THESE CIRCUMSTANCES AS NO ERROR HAS BEEN POINTED OUT BY THE REVENUE IN THE ORDER OF LD. CIT(A) THE FINDINGS OF LD. I.T.A. NO. 4410/DEL/2009 5/5 CIT(A) ON THIS ISSUE STAND CONFIRMED. IN THESE CIRCUMSTANCES THE APPEAL OF THE REVENUE IS DISMISS ED. 5. IN THE RESULT THE APPEAL OF THE REVENUE STANDS DISMISSED. 6. THIS DECISION WAS PRONOUNCED IN THE OPEN COURT O N 22 ND JAN. 2010. SD./- SD./- (K. D. RANJAN) (GEORGE MATHAN) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED:22 ND JAN. 2010 SP. COPY FORWARDED TO 1. APPELLANT 2. RESPONDENT 3. CIT TRUE COPY: BY ORDER 4. CIT(A) 5. DR DY. REGISTRAR ITAT NEW DELHI