In the present case the issue was whether the amount of Rs 20,23,317/- incurred by the assessee on development of its website was an expenditure of a capital nature or of a revenue nature?

 The assessee is engaged in the travel business and makes all kinds of arrangements for its clients such as booking of hotel rooms, providing taxi services, booking of air tickets and railway tickets etc. In its website, the assessee indicates the various destinations and places for which it can arrange travel, hotel booking etc. for its clients. The assessee's clients can use the assessee's website for the purposes of availing of the services provided by the assessee.

Accordingly to the Assessing Officer the expenditure of Rs 20,23,317/-made by the assessee in the year in question was of a capital nature inasmuch as it had acquired an asset which would provide the assessee with an enduring benefit.

In this matter Delhi High Court allowed the expenditure as revenue expenditure and held that:

"Considered in the light of these principles enunciated by the Supreme Court, it is clear that just because a particular expenditure may result in an enduring benefit would not make such an expenditure of a capital nature. What is to be seen is what is the real intent and purpose of the expenditure and as to whether there is any accretion to the fixed capital of the assessee. In the case of expenditure on a website, there is no change in the fixed capital of the assessee. Although the website may provide an enduring benefit to an assessee, the intent and purpose behind the purpose for a website is not to create an asset but only to provide a means for disseminating the information about the assessee. The same could very well have been achieved and, indeed, in the past, it was achieved by printing travel brochures and other published materials and pamphlets. The advance of technology and the wide spread use of the internet has provided a very powerful medium to companies to publicize their activities to a larger spectrum of people at a much lower cost. Websites enable companies to do what the printed brochures did but, in a much more efficient manner as well as in a much shorter period of time and covering a much larger set of people worldwide."

(For full text of judgment - visit 2008 -TMI - 30661 - DELHI HIGH COURT)

Website development expense characterization: intent and accretion determine revenue treatment, not mere enduring benefit. Whether website development costs are capital or revenue depends on the intent and purpose and on whether there is accretion to fixed capital; a website serving to disseminate information and publicize services, analogous to printed brochures, does not change fixed capital and is revenue expenditure despite providing an enduring benefit.