Commissioner of Income Tax II, Chandigarh vs JCT Electronics Ltd.

M.M. Kumar, J.—The revenue has approached this Court by filing the instant appeal u/s 260A of the income tax Act, 1961 (''the Act'') challenging order dated 30-4-2009 passed by the income tax Appellate Tribunal, Chandigarh Bench B, Chandigarh (''the Tribunal''). It has been claimed that following substantive question of law would arise for determination of this Court :-

Whether on the facts and in the circumstances of the case, the order of the Tribunal is perverse in treating the expenditure for restructuring and viability study and preparation of restructuring proposal as revenue expenditure whereas the expenditure is of capital nature which will provide advantage of enduring nature and is not for enhancing the sales or earning any other income.

In order to appreciate the controversy few facts may be noticed. The assessee-company is manufacturing colour picture tubes. In respect of the assessment year 2004-05 the assessee-company incurred expenditure for the purpose of restructuring. The assessee-company had become a sick unit and that regard a reference was made to BIFER for its rehabilitation which has passed an order giving substantial relief on 12-3-2007. The services of M/s. Oberoi, Sood and Kapoor, Chartered Accountants were engaged which resulted in preparation of final restructuring scheme. On account of assistance rendered by the Chartered Accountants major concession and substantial relief was given to the assessee-company. A professional payment of Rs. 53,70,000 was made to the Chartered Accountants and Rs. 15,00,000 were paid to M/s. Asset Care Enterprises Ltd. The aforesaid expenditure were claimed as expenses for professional services for processing of its case before the BIFER. The Assessing Officer opined that such expenditure incurred by the assessee-company for the purpose of restructuring would be an advantage of enduring nature. The expenditure has not been incurred for enhancing sale nor for earning of any income. The Commissioner of income tax (Appeals) also accepted the opinion expressed by the Assessing Officer. However, the Tribunal on the aforesaid issue held otherwise by observing as under :-

"... We are of view that the impugned expenditure was incurred for enhancing the sales or for earning the income. We have found that the impugned expenses were incurred in conformity with the provisions of section 37 of the Act as the same were for the purposes of business, therefore, we are of the view it is an allowable deduction. The ratio laid by the Hon''ble Madras High Court in the case of Commissioner of Income Tax Vs. South India Sugars Ltd., clearly supports the case of the assessee. Reliance can also be placed in B. Nagi Reddy Vs. Commissioner of Income Tax, consequently, both these grounds of the assessee are allowed.

There is no statutory definition of expression ''capital expenditure''. The Courts have repeatedly held that such expression has to be construed in a business sense save insofar as there may be rules of construction applicable to it. The expression occurring in section 37(1) of the Act makes its meaning more elastic in its application to the facts of each case. This is consistent view of the Courts. The word ''capital'' connotes permanency and capital expenditure is therefore, closely akin to the concept of securing something, tangible or intangible property, corporeal or incorporeal right so that they could be of a lasting or enduring benefit to the enterprise in issue. Revenue nature expenditure, on the other hand, is operational in its perspective and solely intended for the furtherance of the enterprise. (Se Commissioner of Income Tax Vs. Wolkem (P.) Ltd. Co., ) Having heard the learned counsel we are of the view that the Tribunal has rightly placed reliance on a Division Bench judgment of the Madras High Court in the case of Commissioner of Income Tax Vs. South India Sugars Ltd., . In that case the Division Bench of the Madras High Court had taken the view that once the ultimate fact finding authority i.e., the Tribunal has come to the conclusion that the company had incurred expenditure on legal, financial and industrial consultation then it could not be said to be outside the purview of business of the company. Likewise in the present case, the conclusion reached by the Tribunal is that the expenditure towards consultation charges for restructuring of the company, the amount paid to the Chartered Accountants and Asset Care Enterprise Ltd., was incurred or for earning income. Further finding of the Tribunal is that expenses were also incurred in conformity with the provisions of section 37 of the Act which was meant for the purposes of business. Therefore, we find that view taken by the Tribunal is unexceptionable. As such no question of law warranting admission of the appeal would arise much less a substantive question. The appeal is wholly without merit and the same is accordingly dismissed.