Revenue expenditure, section 14A limits, section 80G deduction, and depreciation on acquired business rights in slump sale.

Compensatory interest paid for delayed licence and migration fee was treated as revenue expenditure because it did not create a new asset or enduring advantage. Section 14A read with Rule 8D was held inapplicable where no exempt income was earned during the year. A CSR-related payment to an institution approved under section 80G was regarded as eligible for deduction under Chapter VIA, with no statutory bar merely because the payment satisfied a CSR obligation. Depreciation was also allowed on an intangible asset representing acquired workforce under a genuine slump sale, as such business or commercial rights were held to fall within section 32(1)(ii).

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Issues: (i) whether interest paid for delayed payment of licence fee and migration fee was capital or revenue expenditure; (ii) whether any disallowance under section 14A of the Income-tax Act, 1961 read with Rule 8D of the Income-tax Rules, 1962 could be made in the absence of exempt income; (iii) whether CSR-related payment made to an eligible 80G institution was allowable as deduction under section 80G of the Income-tax Act, 1961; (iv) whether depreciation was allowable on the intangible asset representing workforce acquired under slump sale as a business or commercial right of similar nature.

Issue (i): whether interest paid for delayed payment of licence fee and migration fee was capital or revenue expenditure.

Analysis: The payment in question was found to be compensatory in nature and linked to delayed payment of statutory licence or migration fee. The underlying licence arrangement had already existed and the payment did not bring into existence a new asset or advantage of enduring nature. The reasoning adopted was that the character of the principal fee did not automatically convert the compensatory interest into capital expenditure.

Conclusion: The interest expenditure was held to be revenue in nature and the disallowance was deleted, in favour of the assessee.

Issue (ii): whether any disallowance under section 14A of the Income-tax Act, 1961 read with Rule 8D of the Income-tax Rules, 1962 could be made in the absence of exempt income.

Analysis: It was found that the assessee had earned no exempt income from the investments considered for disallowance during the year. In such circumstances, and following the settled jurisdictional view, the statutory disallowance mechanism was not attracted.

Conclusion: The disallowance under section 14A read with Rule 8D was held unsustainable and the deletion was upheld, in favour of the assessee.

Issue (iii): whether CSR-related payment made to an eligible 80G institution was allowable as deduction under section 80G of the Income-tax Act, 1961.

Analysis: The payment was made to an institution holding 80G approval, and there was no specific bar in the Income-tax Act against claiming deduction under section 80G merely because the payment was made in discharge of CSR obligation. The distinction between disallowance as business expenditure and eligibility as a donation under Chapter VIA was applied.

Conclusion: The deduction under section 80G was held allowable and the Revenue's challenge failed, in favour of the assessee.

Issue (iv): whether depreciation was allowable on the intangible asset representing workforce acquired under slump sale as a business or commercial right of similar nature.

Analysis: The acquired business rights included the transferred workforce and formed part of the tool of trade enabling continuation of the business without interruption. The valuation of the intangible asset was not successfully discredited, and the transaction was treated as a genuine slump sale rather than a colourable arrangement. The expression "business or commercial rights of similar nature" was held broad enough to encompass such intangible assets under section 32(1)(ii).

Conclusion: Depreciation was held allowable on the intangible asset and the disallowance was deleted, in favour of the assessee.

Final Conclusion: The Revenue's appeal failed on all issues, while the assessee succeeded on the depreciation claim in its cross appeal, leaving the assessee with substantial relief on the disputed additions.

Ratio Decidendi: Compensatory interest linked to delayed payment of licence-related dues is revenue expenditure when no new asset is acquired; section 14A disallowance does not arise in the absence of exempt income; CSR payments to an eligible 80G institution can qualify for deduction under section 80G; and acquired intangible business rights, including workforce transferred under a genuine slump sale, may constitute depreciable business or commercial rights of similar nature under section 32(1)(ii).

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