Delhi High Court
Commissioner Of Income Tax vs M/S. Shell Bitumen India (P) Ltd. on 11 August, 2010
Author: Manmohan
#22
* IN THE HIGH COURT OF DELHI AT NEW DELHI
+ ITA 815/2010
COMMISSIONER OF
INCOME TAX ..... Appellant
Through Ms. Suruchii Aggarwal with
Mr. Anish K.V., Advocates
versus
M/S. SHELL BITUMEN INDIA
(P) LTD. ..... Respondent
Through None
Reserved on : 3rd August, 2010
% Date of Decision : 11th August, 2010
CORAM:
HON'BLE THE CHIEF JUSTICE
HON'BLE MR. JUSTICE MANMOHAN
1. Whether the Reporters of local papers may be allowed to see the judgment? No.
2. To be referred to the Reporter or not? Yes.
3. Whether the judgment should be reported in the Digest? Yes.
JUDGMENT
MANMOHAN, J
1. The present appeal has been filed under Section 260A of Income
Tax Act, 1961 (for brevity "Act, 1961") challenging the order dated
10th September, 2009 passed by the Income Tax Appellate Tribunal (in
short "ITAT") in ITA No. 3186/Del/2009 relating to the Assessment
Year 2005-2006.
2. Ms. Suruchii Aggarwal, learned counsel for Revenue submitted
that ITAT had failed to appreciate that the consultancy charges paid to
various authorities for obtaining study reports in Bitumen constituted an
enduring advantage to the respondent-assessee. She further submitted
that the study reports in Bitumen constituted acquisition of an income-
earning asset and hence expense thereon comprised capital expenditure.
Ms. Aggarwal placed reliance upon the Assessing Officer's order,
which reads as under :-
"The assessee's submissions have been considered and
are not acceptable. From the nature of expenditure
incurred it can be seen that out of Rs.18,50,967/- the
expenditure totaling to Rs.12,07,907/- has been spent on
account of Sturdy on Bitumen, Water Proofing, Feedback
Reports etc. which will give the assessee benefit of
enduring in nature and thus is treated as capital
expenditure."
3. Ms. Aggarwal also placed reliance upon a judgment of this
Court in Commissioner of Income Tax Vs. Gujarat Guardian Ltd.,
(2008) 306 ITR 320 (Delhi).
4. Having perused the paper book and having heard Ms. Aggarwal,
we are in agreement with the conclusion arrived at by the
Commissioner of Income Tax (Appeals) and the ITAT that the
consultancy expenditure in the present case amounted to revenue
expenditure, as by virtue of the consultancy the respondent-assessee
had neither acquired an income earning asset nor did it obtain any
enduring advantage. Moreover, the aforesaid expenses are clearly
relatable to the business of the respondent-assessee.
5. We also find that the Assessing Officer has not given any reason
to treat the consultancy charges as that of the capital expenditure.
6. In fact, the test to determine whether an expenditure is capital or
revenue has been outlined in a number of judgments. The Supreme
Court in Commissioner of Income Tax Vs. Madras Auto Service (P.)
Ltd. (1998) 233 ITR 468 has laid down general principles applicable
for determining whether a particular expenditure is capital or revenue
one. The general principles outlined by the Supreme Court in the
aforesaid case are as under:-
"(1) Outlay is deemed to be capital when it is made for
the initiation of a business, for extension of a business or
for a substantial replacement of equipment;
(2) Expenditure may be treated as properly attributable
to capital when it is made not only once and for all, but
with a view to bringing into existence an asset or an
advantage for the enduring benefit of a trade. If what is
got rid of by a lump sum payment is an annual business
expense chargeable against revenue, the lump sum
payment should equally be regarded as a business
expense, but if the lump sum payment brings in a capital
asset, then that puts the business on another footing
altogether;
(3) Whether for the purpose of the expenditure, any
capital was withdrawn, or, in other words, whether the
object of incurring the expenditure was to employ what
was taken in as capital of the business. Again, it is to be
seen whether the expenditure incurred was part of the
fixed capital of the business or part of its circulating
capital."
7. A Division Bench of this Court in Hindustan Times Ltd. Vs.
Commissioner of Income Tax, New Delhi (1980) 122 ITR 977 has
held that the word "enduring" has a special significance and that what
matters is the nature of advantage in a commercial sense. The Court
clarified that it is only where the advantage is in the capital field that
the expenditure would be capital in nature.
8. We are afraid that the judgment referred to by the learned
counsel for the Revenue has no application to the facts of the present
case as in the case cited by her, the issue whether consultancy charges
amount to capital or revenue expenditure did not arise.
9. In fact, in the present case the advantage of the consultancy
report left the respondent-assessee's fixed capital untouched.
Consequently, in our view, the said expenditure would be on revenue
account.
10. Accordingly, present appeal, being devoid of merit, is dismissed
in limine.
MANMOHAN, J
CHIEF JUSTICE
AUGUST 11, 2010
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