COMMISSIONER OF INCOME-TAX VS EMTICI ENGINEERING LTD.EMTICI ENGINEERING LTD.
2002 P T D 1336
[242 I T R 86]
[Gujarat High Court (India)]
Before B. C. Patel and K. M. Mehta, JJ
COMMISSIONER OF INCOME-TAX
Versus
EMTICI ENGINEERING LTD.
Income-tax Application No.216 of 1999, decided on 24/11/1999.
Income-tax--
----Reference---Capital or Revenue expenditure---Donation to cricket club---Tribunal right in holding that contribution to cricket club cannot be treated as capital in nature and directing Assessing Officer to allow it as Revenue expenditure --No question of law arose---Indian Income Tax Act, 1961, Ss. 37, 80G & 256.
The assessee which had given a sum of Rs.2,50,000 as donation to the Gujarat Cricket Club claimed 100 per cent. deduction on the ground that the expenditure was in the nature of staff welfare activity. The assessee claimed the expenditure on the ground of commercial expediency and stated that the amount had been spent in order to facilitate the carrying on of the business indirectly, by satisfying the needs of executives and staff. The Assessing Officer held that a benefit of enduring nature accrued to the assessee-company. On appeal, the Commissioner (Appeals) was not satisfied with regard to the finding of fact recorded by the Assessing Officer and held that out of 12 seats in the event of any event or game, the assessee could reserve six seats for directors, members of their family or their distinguished guests and directed the Assessing Officer to verify the claim and allow deduction under section 80G of the Income Tax Act, 1961. On further appeal, the Tribunal held that in the absence of any. evidence that seats were reserved for the directors or their family members only, merely on the basis of apprehension that they could be used only by them, the Department could not disallow the claim The Tribunal further held that an expenditure could be considered as capital in nature only when any capital asset had been created by the assessee by the expenditure. The Tribunal held that the assessee had no proprietary right on the seats which had been promised by the association to be allotted at the time of any event or game and, therefore, that the capital structure of the company had not been increased by the said contribution and hence the donation could not be treated as, capital expenditure. On an application to direct reference:
Held, on the facts, that the Tribunal was right in holding that the amount of Rs.2,50,000 contributed by the assessee to the Gujarat Cricket Association could not be treated as of capital nature and directing the Assessing Officer to allow the same as Revenue expenditure. No question of law arose.
Empire Jute Co. Ltd. v. CIT (1980) 124 ITR 1 (SC) and Commissioner of Taxes v. Nchanga Consolidated Copper Mines Ltd. (1965) 58 ITR 241 (PC) fol.
B.B. Nayak with Manish R. Bhatt for the Commissioner.
R.K. Patel for the Assessee.
JUDGMENT
The Commissioner of Income-tax, Gujarat Central, Ahmedabad, has preferred this application under section 256(2) of the Income Tax Act, 1961, (hereinafter referred to as the Act), as the application preferred before the Income-tax Appellate Tribunal under section 256(1) came to be rejected on September 11, 1998.
The assessee indicated in his profit and loss account donation aggregating to Rs.3,50,145 out of which a sum of Rs.2,50,000 given as donation to the Gujarat Cricket Club was the subject-matter, 100 per cent deduction was claimed, claiming that the expenditure was in the nature of staff welfare activity. It was pointed out to the Assessing Officer that the said expenditure was claimed on the ground of commercial expediency in order to facilitate the carrying on of the business indirectly, by satisfying the needs of the executives and staff. The Assessing Officer held that a benefit of enduring nature has accrued to the assessee-company and therefore, the same has resulted in the acquisition of a capital asset. It seems that the Commissioner of Income?tax (Appeals) hearing the appeal against the order passed by the Assessing Office was not satisfied with regard to -the finding of fact recorded by the Assessing Officer. The Commissioner of Income-tax (Appeals) had an apprehension in the mind that out of 12 seats, the assessee could reserve six seats for directors, members of their family or, their distinguished guests, and hence directed the Assessing 'Officer to verify the claim and allow deduction under section 80G of the Act.
The Tribunal expressed its view in favour of the assessee and hence this application is preferred praying to refer the following question:
"Whether the Appellate Tribunal is right in law and on facts in holding that the amount of Rs.2.5 lakhs contributed by the assessee to the Gujarat Cricket Association cannot be treated as of capital nature and directing the Assessing Officer to allow the same as Revenue expenditure?"
The Tribunal is the final fact-finding authority. This Court is required to exercise the jurisdiction if there is a substantial question of law raised by either party. In the instant case, from the assessment order, despite a specific case pleaded before the Assessing Officer, the Assessing Officer has not recorded any finding of fact in that behalf, that is to say, whether the expenditure was in the nature of staff welfare activities or not. Further, it appears that the Assessing Officer concentrated on the aspect that the benefit which has accrued in favour of the assessee is of enduring nature, and, therefore, the expenditure must be considered as capital expenditure as it has ultimately resulted in the acquisition of a capital asset.
The Tribunal accepted the facts pleaded and pointed out that in the absence of any evidence that seats are reserved for the directors or their family members only, merely on the basis of an apprehension that they could be used only by them, the Department cannot disallow the claim. The Tribunal further observed that an expenditure can be considered as capital in nature only when any capital asset had been created by the assessee by the expenditure. It was not disputed before the Tribunal that the assessee had no proprietary right on the seats which had been promised by .the association to be allotted at the time of any event or game. The Tribunal, therefore, held that the capital structure of the company has not been increased by the said contribution and, therefore, the contribution cannot be treated as capital expenditure.
The apex Court in the case of Empire Jute Co. Ltd. v. CIT (1980) 124 ITR 1, has pointed out as to when a payment is to be considered as Revenue or capital in nature. In the said decision, the apex Court also considered the decision in the case of Commissioner of Taxes v. Nchanga Consolidated Copper Mines Ltd. (1,965) 58 ITR 241 (PC), and the apex Court pointed out as under (page 10):
"This test, as the parenthetical clause shows, must yield where there are special circumstances leading to a contrary conclusion and, as pointed out by Lord Radcliffe in Commissioner of Taxes v. Nchanga Consolidated Copper Mines Ltd. (1965) 58 ITR 241 (PC), it would be misleading to suppose that in all cases, securing a benefit for the business would be, prima facie, capital expenditure `so long as the benefit is not so transitory as to have no endurance at all'. There may be cases where expenditure, even if incurred for obtaining advantage of enduring benefit, may, none the less, be on Revenue account and the test of enduring benefit may break down. It is not every advantage of enduring nature acquired by an assessee that brings the case within the principle laid down in this test. What is material to consider is the nature of the advantage in a commercial sense and it is only where the advantage is in the capital field that the expenditure would be disallowable on an application of this test. If the advantage consists merely in facilitating, the assessee's trading operations or enabling the management and conduct of the assessee's business to be carried on more efficiently or more profitably while leaving the fixed capital untouched, the expenditure would be on Revenue account, even though the advantage may endure for an indefinite 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."
It seems that the Tribunal, considering the decision as aforesaid and on the material placed before it, arrived at a conclusion. In our view, therefore, it cannot be said that any question of law arises in this matter and hence the application should be rejected.
The Tribunal has directed the Assessing Officer to deduct the aforesaid amount from the computation of income of the assessee. We are not required to state in these proceedings as to under what head the expenditure is to be treated, in view of the directions given by the Tribunal, and submissions made in this regard by learned counsel for the Revenue have no merit.
The application is rejected, with no order as to costs.
M.B.A./673/FC?????????????????????????????????????????????????????????????????????????????????? Application rejected.