TaxTMI 
TaxTMI 
2011 (3) TMI 622
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....estion of law which is raised is in the following terms : "Whether the Income-tax Appellate Tribunal was correct in law in allowing a sum of Rs. 1,52,24,029 claimed by the assessee as lease-hold improvements treating the same as revenue in nature ?" 3. Final arguments were heard on these three aforesaid questions at the admission stage itself. We proceed to decide these questions now. Re : Expenditure on advertisement and publicity ; nature of : 4. In the assessment year 2001-02, the assessee-company claimed an expenditure of Rs. 3.93 crores on account of advertisement and publicity expenditure as revenue expenditure and the same had been debited to the profit and loss account. The Assessing Officer was of the view that this expenditure cannot be termed as expenditure relevant exclusively for the period of 12 months under consideration during the said assessment year. Such advertisement and publicity expenses had a bearing on the period which spreads over a period of five years and, therefore, the assessee could not claim the benefit in the year in which the expenditure was incurred. Thus, opining that the benefit was of enduring nature, he was of th....
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.... expenditure predicated on the provisions of section 35D of the Act. Her arguments rested on the premise that the expenditure on publicity and advertisement was of enduring nature and benefit accrued from the same could not be confined to the year in question when the expenditure was incurred. She relied upon the judgment of Madras Industrial Investment Corporation Ltd. v. CIT [1997] 225 ITR 802 (SC) wherein it was held as under (pages 812-13) : "The Tribunal, however, held that since the entire liability to pay the discount had been incurred in the accounting year in question, the assessee was entitled to deduct the entire amount of Rs. 3,00,000 in that accounting year. This conclusion does not appear to be justified looking to the nature of the liability. It is true that the liability has been incurred in the accounting year. But the liability is a continuing liability which stretches over a period of 12 years. It is, there-fore, a liability spread over a period of 12 years. Ordinarily, revenue expenditure which is incurred wholly and exclusively for the purpose of business must be allowed in its entirely in the year in which it is incurred. It cannot be spread over a num....
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.... senior counsel appearing for the assessee refuted the aforesaid submissions and sought to justify the approach of the Tribunal allowing the expenditure as revenue expenditure. His submission was that in order to allow the expenditure as revenue expenditure, the relevant factor to be seen was that the expenditure was incurred in the year in question and the same was for business purposes. The question of such an expenditure of enduring benefit would not be of any relevance, in such circumstances, having regard to the judgment of the Supreme Court in Empire Jute Co. Ltd. v. CIT [1980] 124 ITR 1 (SC). He further submitted that accrual of income and incurring of expenditure were entirely two different aspects and he also submitted that "matching concept" would not apply in the instant case as held in CIT v. Industrial Finance Corporation of India Ltd.[2009] 185 Taxman 296 (Delhi). He further submitted that the judgment in Madras Industrial Investment Corporation Ltd. [1997] 225 ITR 802 (SC) relied upon by the Revenue was duly considered and explained by this court in the same judgment, i.e., IFCI (supra). 9. From the facts noted above and on the basis of the submissions of lea....
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....225 ITR 802 (SC), the argument of the Revenue was rejected in the following manner : "The judgments on which reliance is placed by the learned counsel for the Revenue would be of no avail in the instant case. The learned counsel for the Revenue had strongly argued that matching concept is to be applied, as per which part of the expenditure had to be deferred and claimed in the subsequent years and, therefore, approach of the Assessing Officer was correct. However, this argument overlooks that even in Madras Industrial Investment Corporation Ltd. [1997] 225 ITR 802 (SC), on which the reliance was placed by Ms. Bansal, the general principle stated was that ordinarily revenue expenditure incurred wholly and exclusively for the purpose of business can be allowed in the year in which it is incurred. Some exceptional cases can justify spreading the expenditure and claiming it over a period of ensuing years. It is important to note that in that judgment, it was the assessee who wanted spreading the expenditure over a period of time as was justifying such spread. It was a case of issuing debentures at discount ; whereas the assessee had actually incurred the liability to pay the di....
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.... be noticed is that though the entire expenditure was incurred in that year, it was the assessee who wanted the spread over. The court was conscious of the principle that normally revenue expenditure is to be allowed in the same year in which it is incurred, but at the instance of the assessee, who wanted spreading over, the court agreed to allow the assessee that benefit when it was found that there was a continuing benefit to the business of the company over the entire period." 12. This court, thus, explained in no uncertain terms that the normal rule accepted by the Supreme Court in the said judgment was that the expenditure is to be allowed in the year in which it was incurred. Only at the instance of the assessee who wanted to spread over, the court had agreed to allow the assessee the benefit after finding that there was a continuing benefit to the company over the entire period. The ratio of this judgment was thus summarized in the following manner : "What follows from the above is that normally the ordinary rule is to be applied, namely, revenue expenditure incurred in a particular year is to be allowed in that year. Thus, if the assessee claims that expendi....
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....nite future. The test of enduring benefit is, therefore, not a certain or conclusive test and it cannot be applied blindly and mechanically without regard to the particular facts and circumstances of a given case." 14. Applying the aforesaid principle to the facts of this case, it clearly emerges that the expenditure on publicity and advertisement is to be treated as revenue in nature allowable fully in the year in which it was incurred. Concededly, there is no advantage which has accrued to the assessee in the capital field. The expenditure was incurred to facilitate the assessee's trading operations. No fixed capital was created by this expenditure. We may also add here that in the income-tax law, there is no concept of deferred revenue expenditure. Once the assessee claims the deduction for the whole amount of such expenditure, even in the year in which it is incurred, and the expenditure fulfils the test laid down under section 37 of the Act, it has to be allowed. Only in exceptional cases, the nature mentioned in Madras Industrial Investment Corporation Ltd. [1997] 225 ITR 802 (SC), the expenditure can be allowed to be spread over, that too, when the assessee chooses t....
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....hing to do with the period of length of time and had no linkage, whatsoever, to any period, the entire expenditure was allowable in the year in which it was incurred. The Tribunal has further held that the expenditure is incurred once and for all in the form of stamping duty as well as commission paid to the direct selling agents for pro-curing the loan assignments and it is not dependent upon the working out of the agreements ultimately entered into between the assessee and the customers. Since the commission is paid to the direct selling agents, for their services in sourcing hire in the year in which the loan is disbursed, it is to be allowed as business expenditure. The Tribunal, to arrive at this finding took into consideration the clauses of the agreement relating to mode of payment of consideration as well as "termination" clause in the agreement. Thus, as the entire expenditure was incurred which admittedly have a nexus with the business of the assessee, it was treated as business expenditure allowable under section 37 of the Act. The Tribunal also relied upon the judgment of the Supreme Court in the cases of Calcutta Company Ltd. v. CIT [1959] 37 ITR 1 (SC), CIT v. Associa....
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....s upheld this order of the Commissioner of Income-tax (Appeals). 21. The argument of Mrs. Bansal was that the nomenclature of items of expenditure namely sanitary fittings, civil works, brickworks, flooring, etc. would clearly show that this expenditure could be capital in nature. Her grievance was that the Commissioner of Income-tax (Appeals) or the Tribunal did not go into this question at all and simply accepted the bifurcation given by the assessee in capitalizing the portion of the expenditure and treating the part of the expenditure as revenue. Her plea, therefore, was that the matter be remitted back to the Assessing Officer. She conceded, at the same time, that even the Assessing Officer had not done this exercise. It is clear that the Assessing Officer had not gone into the question as to whether the expenditure incurred on leasehold improvements was capital or revenue in nature. A large number of premises are taken on lease by the assessee throughout the country and expenditure on improvements of these lease premises was incurred by the assessee. The assessee has treated part of the said expenditure as capital in nature and depreciation thereon was claimed. In so ....