2014 (8) TMI 728 - HC - Income Tax

High Court upholds Tribunal's decision on revenue expenditures for Club Membership Fee & ISO 9002 Certificate.

The High Court dismissed the revenue's appeal under Section 260A of the Income Tax Act for the assessment year 1997-98. The Court upheld the Tribunal's ... Capital or revenue expenditure - one time expenditure incurred for the Club Membership Fee – Held that:- The corporate membership which was obtained for running the business with a view to produce profit would amount to revenue expenditure - such an expenditure does not bring into existence an asset or an advantage for the enduring benefit of a trade - by subscribing to the membership of a club, no capital asset is created or comes into existence - Following the decision in Commissioner Of Income-Tax Versus Engineers India Ltd. [1999 (7) TMI 58 - DELHI High Court] - Such expenses are for running the business with a view to produce the benefits to the assessee - it cannot be treated as capital asset – Decided against Revenue. Nature of fee received – Capital or revenue - Expenses incurred on ISO certification – Held that:- Following the decision in Empire Jute Co. Limited vs. CIT [1980 (5) TMI 1 - SUPREME Court] - the expenses incurred on ISO 9002 Certificate is revenue in nature – Decided against Revenue. Issues involved:1. Nature of one-time expenditure for Club Membership Fee.2. Nature of expenses incurred on ISO 9002 Certificate.3. Entertaining the claim of the assessee filed after the expiry of the period stipulated under section 139(5) of the Income Tax Act.Issue 1: Nature of one-time expenditure for Club Membership Fee:The appeal was filed by the revenue against the Tribunal's order regarding the nature of the one-time expenditure incurred for the Club Membership Fee for the assessment year 1997-98. The revenue argued that the expenditure was capital in nature, while the Tribunal held it as revenue expenditure. The revenue contended that the expenditure did not bring into existence an asset or advantage for enduring benefit. The Full Bench judgment in M/s Groz Beckert Asia Limited's case was cited, which concluded that corporate membership for running the business to produce profit amounted to revenue expenditure. The Court agreed with this reasoning and dismissed the appeal against the revenue.Issue 2: Nature of expenses incurred on ISO 9002 Certificate:The second issue revolved around the nature of expenses incurred on obtaining the ISO 9002 Certificate. The revenue claimed that the expenses were capital in nature due to their enduring benefits for the years to come. However, the Court referred to the judgment in Commissioner of Income Tax I, Ludhiana vs. M/s Varinder Agro Chemicals Limited, which held such expenses as revenue expenditure. Citing precedents from the Apex Court, the Court concluded that the expenses for the ISO 9002 Certificate were revenue in nature. Consequently, the appeal on this issue was also dismissed against the revenue.Issue 3: Entertaining the claim filed after the stipulated period:The final issue pertained to the claim filed by the assessee after the expiry of the period stipulated under section 139(5) of the Income Tax Act. The revenue argued that the Tribunal erred in remanding the case to the Assessing Officer despite no claim made by the assessee regarding bad debts in the revised return. The Court, however, noted that the matter was remanded to the Assessing Officer to adjudicate the claim on its merits in accordance with the law. As the issue was referred back for assessment, the Court considered it disposed of. Consequently, the appeal on this issue was also dismissed.In conclusion, the High Court dismissed the appeal by the revenue under Section 260A of the Income Tax Act, 1961, for the assessment year 1997-98. The Court upheld the Tribunal's decisions on the nature of the one-time expenditure for Club Membership Fee and the expenses incurred on the ISO 9002 Certificate as revenue expenditures. Additionally, the Court addressed the issue of entertaining the claim filed after the stipulated period, remanding it to the Assessing Officer for further assessment. The judgment provided detailed analysis and referenced relevant legal precedents to support its conclusions on each issue raised in the appeal.