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Income Tax Appellate Tribunal, DELHI ‘D’ BENCH,
Before: SHRI N.K. BILLAIYA, & SHRI N.K. CHOUDHRY
PER N.K. BILLAIYA, ACCOUNTANT MEMBER:-
This appeal by the Revenue is preferred against the order of the CIT(A) -42, New Delhi dated 28.02.2018 pertaining to Assessment Year 2011-12.
2. The grievances of the Revenue read as under:
“1. Whether the ld. CIT(A) was correct on facts and circumstances of the case and in law in deleting the addition of Rs. 18,57,38,926/- made on account of advertisement receipt not credited to the P&L A/c, including the fact that the TDS has been deducted on the same as per For 26AS?
2. Whether the ld. CIT(A) was correct in law and on facts in deleting the disallowance of Rs. 1,29,17,589/- made by the Assessing Officer on account of legal expense incurred for claiming title over the capital assets.
3. Whether the ld. CIT(A) was correct in law and on facts in holding the BQS as intangible asset of the assessee and deleting the disallowance made on account of depreciation claimed amounting to Rs. 3,28,54,283/-.”
Briefly stated, the facts of the case are that the assessee is a public limited company, engaged in the business of developing, maintaining and operating of Bus-Q-Shelters, Metro Station, Road Highway, Bridge, Expressway etc.
For the year under consideration, the assessee filed return declaring loss of Rs. 29 crores, which return was selected for scrutiny assessment and an assessment was framed under section 143(3) of the Income-tax Act, 1961 [hereinafter referred to as 'The Act'] vide order dated 27.2.2014 at a loss of Rs. 1.71 crores after making the following additions/disallowances:
“(i) Addition of Rs. 18,57,38,926 primarily on the ground that the assessee had claimed credit of the entire amount of TDS deducted and deposited by JSL Media on total amount of Rs.35,44,41,784, but had disclosed income/receipts of Rs.16,87,02,858 only; ii) Addition of Rs.1,29,17,589 on account of disallowance of legal expenses alleging the same be capital expenditure; iii) Addition of Rs.3,28,54,283 on account of disallowance of excessive depreciation on Bus- Q-Shelters; and iv. Disallowance of Rs.4,13,27,000 under section 36(l)(iii) of the Act on account of alleged diversion of interest bearing funds to related parties.”
The afore-stated additions/disallowances were agitated before the CIT[A], who, vide order dated 23.2.2018, allowed the appeal of the assessee and deleted the impugned additions/disallowances.
Before us, the ld. DR, relying upon the assessment order, read the relevant observations of the Assessing Officer.
In so far as the deletion of addition of Rs.18.57 crores is concerned, the ld. DR stated that the assessee has taken credit of the entire amount of TDS. However, total receipts were not credited by the assessee. It is the say of the ld. DR that nowhere in the agreement there is a clause for the reduction of Ad Revenue.
Referring to the copy of ledger account, which is exhibited at page 125 of the paper book, the ld. DR pointed out that by way of general entry on the last day of the accounting year, that is 31.03.2011, the assessee has written off Rs.16,93,81,333/- mentioning it as “being amount of discount provided on outstanding amount as per the details attached”.
The ld. DR continued by saying that till 23.3.2011, the assessee continued crediting income from advertisement display, received from Parivartan City Infrastructure Private Limited, and on 31.3.2011, wrote off the amount as per its convenience, thereby reducing the income from advertisement display.
On the other hand, the learned counsel for the assessee stated that the general entry may have been passed on the last day of accounting year but it cannot be said that it was an adjustment entry.
It is the say of the learned counsel that as per the agreement, DTC was to handover BQS sites, which it failed to do so, and, therefore, the assessee could not provide BQS sites to Parivartan City Infrastructure Private Limited as agreed upon.
The learned counsel stated that the agreement with Parivartan City Infrastructure Private Limited was to provide 225 BQS sites but because of failure on the part of DTC, the assessee could hand over only 200 BQS sites. The learned counsel pointed out that the quarrel with the DTC travelled up to the Hon’ble High Court of Delhi.
The learned counsel drew our attention to the correspondence between the assessee and M/s Parivartan City Infrastructure Private Limited and pointed out that since May 2008, the assessee is constantly deliberating with Parivartan City Infrastructure Private Limited and it is only on 10.06.2009 that M/s Parivartan City Infrastructure Private Limited strongly stated that if the assessee fails to honour the agreement in respect of the agreed BQS, it was proposed by M/s Parivartan City Infrastructure Private Limited as under:
(1) reduction in monthly fees in proportion to revenue due to non-handover of bus shelters in and around the airport;
(2) sharing of revenue generated from BQS after reduction of expenses and reasonable profit margin.
13. Pursuant to this, monthly fees of Rs. 1.32 lakhs per BQS was reduced to Rs.63,000/- per BQS, which has resulted into the impugned write off of Rs.16,93,81,333/–, which has reduced the income from advertisement display.
We have carefully perused all the correspondence between the assessee and M/s Parivartan City Infrastructure Private Limited in light of the agreement between them in respect of BQS. We have also considered the concession agreement dated 26.07.2007 between the assessee and DTC. We find that the entire quarrel revolves around not handing over of the sites by DTC in and around the airport which were premium sites for advertisement revenue. Though the concession agreement was for Rs. 225 BQS sites, which could go up to 310 BQS sites, but the fact of the matter is that DTC handed over only 200 BQS sites, whereas in good faith, the assessee constructed 248 BQS.
15. The Hon’ble Supreme Court of India in the case of E.D Sassoon and Co. 46 ITR 27 has inter-alia held as under:
“If the assessee acquires a right to receive the income, the income can be said to have accrued to him though it may be received later on its being ascertained. The basic conception is that he must have acquired a right to receive the income. There must be a debt owed to him by somebody. There must be as is otherwise expressed debitum in presenti, solvendum in futuro; See W. S. Try Ltd. v. Johnson (Inspector of Taxes)(4), and Webb v. Stenton and Others, Garnishees(5). Unless and until there is created in favour of the assessee a debt due by somebody it cannot be said that he has acquired a right to receive the income or that income has accrued to him.
The word "earned" even though it does not appear in section 4 of the Act has been very often used in the course of the judgments by learned Judges both in the High Courts as well as the Supreme Court. (Vide Commissioner of Income-tax, Bombay v. Ahmedbhai Umarbhai & Co., Bombay(6), and Commissioner of Income-tax, Madras v. K. R. M. T. T. Thiagaraja Chetty & Co 24 ITR 525. It has also been used by the Judicial Committee of the Privy Council in Commissioners of Taxation v. Kirk(1). The concept however cannot be divorced from that of income accruing to the assessee. If income has accrured to the assessee it is certainly earned by him in the sense that he has contributed to its production or the parenthood of the income can be traced to him. But in order that the income can be said to have accrued to or earned by the assessee it is not only necessary that the assessee must have contributed to its accruing or arising by rendering services or otherwise but he must have created a debt in his favour. A debt must have come into existence and he must have acquired a right to receive the payment. Unless and until his contribution or parenthood is effective in bringing into existence a debt or a right to receive the payment or in other words a debitum in presenti, solvendum in futuro it cannot be said that any income has accrued to him. The mere expression "earned" in the sense of rendering the services etc., by itself is of no avail.”
16. Similarly, Hon’ble Supreme Court in the case of Shoorji Vallabhdas and company 46 ITR 144 has held as under:
“No doubt, the Income-tax Act takes into account two points of time at which the liability to tax is attracted, viz., the accrual of the income or its receipt; but the substance of the matter is the income, if income does not result at all, there cannot be a tax, even tough in book-keeping, an entry is made about a "hypothetical income " which does not materialize. Where income has, in fact, been received and is subsequently given up in such circumstances that it remains the income of the recipient, even though given up, the tax may be payable. Where, however, the income can be said not to have resulted at all, there is obviously neither accrual nor receipt of. Income, even though an entry to that, effect might,, incineration circumstances, have been made in the books of, account. This is exactly what has happened in this case, as it happened in the Bombay case, which was approved by this court. Here too, the agreements within the previous year replaced the earlier agreements, and altered the rate in such a way as to make the income different from what had been entered in the books of account A mere book-keeping entry cannot be income, unless income has actually resulted, and in the present case, by the change of the terms the income which accrued and was received consisted of the lesser amounts and not the larger. This; was not a. gift by the assessee firm to the manager companies. The reduction was a part of the agreement entered into by the assesses firm to secure a long-term managing agency arrangement for the two companies which it had floated.
The High Court was right in coming to the conclusion that on the facts of this case the larger income neither accrued nor was received by the assessee firm.
The appeal was dismissed”.
17. Similar view was taken by the Hon’ble Supreme Court in the case of Godara Electricals 225 ITR 746 wherein the Hon’ble Supreme Court has held as under:
“Under the Act income charged to tax is the income that is received or is deemed to be received in India in the previous year relevant to the year for which assessment is made or on the income that accrues or arises or is deemed to accrue or arise in India during such year. The computation of such income is to be made in accordance with the method or accounting with the method or accounting regularly employed by the assessee. It may be either the cash system where entries are made on the basis of actual receipts and actual outgoings or disbursements or it may be the mercantile system where entries are made on accrual basis i.e. accrual of the right to receive payment and the accrual of the liability to disburse or pay.
In the instant case even though the assessee-company was following the mercantile system of accounting and had made entries in the books regarding enhanced charges for the supply made to the consumers, no real income had accrued to the assessee-company in respect of those enhanced charges in view of the fact that soon after the assessee-company decided to enhance the rates in 1963 representative suits were filed by the consumers which were decreed by the trial court and which decree was affirmed by the appellate court and the High Court and it was only on 3-10-1968 that the letters patent appeals filed by the assessee-company were allowed by the Division Bench of the High Court and the said suits were dismissed But appeals were filed against the said judgment by the consumers in the Supreme Court and the same were dismissed by the judgment of the Supreme Court dated 26-2-1969. Shortly thereafter, on 19- 3-1969, the Under Secretary to the Government of Gujarat wrote a letter advising the assessee-company to maintain the status quo, for the rates to the consumers for at least six months. No doubt, the letter addressed by the Under Secretary to the Government of Gujarat to the assessee-company, had no legally binding effect but one has to look at things from practical point of view that the assessee-company. being a licensee, could not ignore the direction of the State Government which was couched in the form of an advice, whereby the assessee-company was asked to maintain the status quo for at least six months and not to take steps to recover the dues towards enhanced charges from the consumers during this period Before the expiry of the period of six months the subsequent suit had been filed by the consumers and during the pendency of the said suit the undertaking of the assessee- company was taken over by the Government of Gujarat, under the Defence of India Rides, and subsequently, it was transferred to the Gujarat State Electricity Board and, as a result, the assessee-company was not in a position to take steps to recover the enhanced charges.
In subsequent representative suit the consumers were challenging the enhancement in charges made in 1963 end had sought a declaration that the assessee-company was not entitled to recover more than 31 paise per unit for light andfans and 20 paise per unit for motive power and the trial court, while decreeing the said suit had given a declaration in these terms. Hence, the said declaration was not confined to the period subsequent to 31-3-1969. The question whether there was real accrual of income to the assessee-company in respect of the enhanced charges for supply of electricity had to be considered by taking the probability or improbability of realisation in a realistic manner. If the matter was considered in this light it was not possible to hold that there was real accrual of income to the assessee-company in respect of the enhanced charges for supply of electricity which were added by the AO while passing the assessment orders in respect of the assessment rears under consideration. The Tribunal, therefore, had rightly held that the claim at the increased rates as trade by the assessee-company on the basis of which necessary entries were made represented only hypothetical income and the impugned amounts as brought to tax by the Assessing Officer did not the income which had really accrued to the assessee-company during the relevant previous years.”
Considering the facts of the case in totality, in light of the decision of the Hon’ble Supreme Court discussed hereinabove, we do not find any reason to interfere with the findings of the ld. CIT(A).
Ground No. 1 is, accordingly, dismissed.
Ground No. 2 relates to the deletion of disallowance of Rs. 1,29,17,589/– made by the Assessing Officer on account of legal expenses incurred.
The underlying facts in issue are that the assessee incurred litigation expenses in respect of dispute between MCD and DTC. The Assessing Officer was of the firm belief that the expenses were incurred to protect the capital assets, namely, bus queue shelters and since the same is in the nature of capital expenditure, therefore expenses incurred for litigation are also in the nature of capital expenditure and, accordingly, disallowed Rs. 1,29,17,589/-.
The ld. CIT(A) considered the grievance of the assessee and found that the DTC breached the terms/conditions of the agreement with the assessee and did not handover 17 project sites in and around Delhi airport, which compelled the assessee to file suit before the Hon’ble High Court of Delhi and the Hon’ble High Court of Delhi was pleased to reduce the concession fee vide interim order dated 01.05.2009.
The ld. CIT(A) was not convinced with the disallowance made by the Assessing Officer. The ld. CIT(A) observed that title in BQS does not vest in the assessee as the same vests with DTC which is evident from concession agreement. The ld. CIT(A) accepted the contention of the assessee that the litigation was to reduce the concession fees in view of the reduced number of shelters and such concession fee has been allowed as revenue expenditure. Therefore, legal expenses relating to dispute on revision of such concession fee has to be allowed as expenditure of revenue in nature and allowed the claim of the assessee.
Before us ld. DR reiterated what has been observed by the Assessing Officer.
Similar quarrel in the case of the assessee travelled up to the Hon’ble Delhi High Court and the Hon’ble Delhi High Court in order dated 05.10.2018 held as under:
“12. Whether expenditure is capital or revenue in nature has to be looked at from a commercial point of view. In the present case as noticed there was failure on the part of respondent- assessee to perform its part of the agreement including operation and maintenance of bus shelters and pay concessionaire fee of Rs.4.09 crores per month. Any expenditure or payment of the said nature would necessarily be revenue in character. Even construction cost of the shelters had to be amortized over a period of 10 years. These would, therefore, not be expenditure of capital nature. In view of the aforesaid, decision in Saurashtra Cement (supra) would not be applicable to the present case as in Saurashtra Cement (supra) the assessee had received liquidated damages on account of failure to supply plant and machinery, a fixed asset. There are a number of cases holding that where the property constructed is not owned by the assessee but by third party, the expenditure incurred by the assessee would not be capital expenditure but revenue expenditure [see Lakshmi Sugar Mills Co.(P) Ltd. versus CIT, (1971) 3 SCC 526, CIT versus Bombay Dyeing and Manufacturing Co. Ltd., (1996) 3 SCC 496].
The test distinguishing capital and revenue expenditure as laid down in Atherton versus British Insulated and Helsby Cables Ltd.,(1925) 10 TC 155, reads as under:-
"But there remains the question, which I have found more difficult, whether apart from the express prohibitions, the sum in question is (in the words used by Lord Sumner in Usher case [(1914) 6 TC 399] a proper debit item to be charged against incomings of the trade when computing the profits of it; or, in other words, whether it is in substance a revenue or a capital expenditure. This appears to me to be a question of fact which is proper to be decided by the Commissioners upon the evidence brought before them in each case; but where, as in the present case, there is no express finding by the Commissioners upon the point, it must be determined by the Courts upon the materials which are available and with due regard to the principles which have been laid down in the authorities. Now, in Vallambrosa Rubber Company v. Farmer [(1910) SC 519 : 5 TC 529] Lord Dunedin, as Lord President of the Court of Session, expressed the opinion that "in a rough way" it was "not a bad criterion of what is capital expenditure as against what is income expenditure to say that capital expenditure is a thing that is going to be spent once and for all and income expenditure is a thing which is going to recur every year"; and no doubt this is often a material consideration. But the criterion suggested is not, and was obviously not intended by Lord Dunedin to be, a decisive one in every case; for it is easy to imagine many cases in which a payment, though made "once and for all", would be properly chargeable against the receipts for the year.... But when an expenditure is made, not only once and for all but with a view to bringing into existence an asset or an advantage for the enduring benefit of a trade, I think that there is very good reason (in the absence of special circumstances leading to an opposite conclusion) for treating such an expenditure as properly attributable not to revenue but to capital."
14. Referring to the said test, Lahore High Court in Benarsidas Jagannath, In re, 15 ITR 185 had held :-
"It is not easy to define the term „capital expenditure‟ in the abstract or to lay down any general and satisfactory test to discriminate between a capital and a revenue expenditure. Nor is it easy to reconcile all the decisions that were cited before us for each case has been decided on its peculiar facts. Some broad principles can, however, be deduced from what the learned Judges have laid down from time to time. They are as follows:
Outlay is deemed to be capital when it is made for the initiation of a business, for extension of a business, or for a substantial replacement of equipment: vide Lord Sands in Commissioners of Inland Revenue v. Granite City Steamship Company [(1927) 13 TC 1, at p. 14] . In City of London Contract Corporation v. Styles [(1887) 2 TC 239 at p. 243], Bowen L.J. observed as to the capital expenditure as follows:
"You do not use it „for the purpose of‟ your concern, which means, for the purpose of carrying on your concern, but you use it to acquire the concern."
Expenditure may be treated as properly attributable to capital when it is made not only once and for all, but with a view to bringing into existence an asset or an advantage for the enduring benefit of a trade: vide Viscount Cave, L.C., in Atherton v. British Insulated and Helsby Cables Ltd. [(1926) 10 TC 155] If what is got rid of by a lump sum payment is an annual business expense chargeable against revenue, the lump sum payment should equally be regarded as a business expense, but if the lump sum payment brings in a capital asset, then that puts the business on another footing altogether. Thus, if labour saving machinery was acquired, the cost of such acquisition cannot be deducted out of the profits by claiming that it relieves the annual labour bill, the business has acquired a new asset, that is, machinery. The benefit‟ expressions „enduring or „of a permanent character‟ were introduced to make it clear that the asset or the right acquired must have enough durability to justify its being treated as a capital asset.
3. Whether for the purpose of the expenditure, any capital was withdrawn, or, in other words, whether the object of incurring the expenditure was to employ what was taken in as capital of the business. Again, it is to be seen whether the expenditure incurred was part of the fixed capital of the business or part of its circulating capital. Fixed capital is what the owner turns to profit by keeping it in his own possession. Circulating or floating capital is what he makes profit of by parting with it or letting it change masters. Circulating capital is capital which is turned over and in the process of being turned over yields profit or loss. Fixed capital, on the other hand, is not involved directly in that process and remains unaffected by it."
The Assessment Order does not refer to the enduring or permanent benefit acquired by the respondent-assessee and therefore on default and failure to abide by the terms, the expenditure or loss incurred by the respondent-assessee was capital expenditure/loss. Cost of construction as recorded and held above was not capital expenditure. Further, the respondent-assessee was liable to pay monthly fee of Rs.4.09 crores to the Delhi Transport Corporation, which is certainly revenue expenditure. Additionally, the respondent-assessee was under obligation to maintain and operate shelters which again would be revenue expenditure.
Having examined the case from all angles, we observe and hold that the Tribunal had rightly held that Rs.2,08,92,603/- was revenue expenditure and not capital expenditure. The Tribunal has also directed that if the respondent-assessee were to succeed in the Arbitration case initiated, the amount refunded would be taxed in the said year. This finding takes care of concern, if any, of the Revenue.
With regard to the second contention it must be noticed that in the present case, the Delhi High Court had dismissed the objections raised by the respondent-assessee and had permitted encashment of bank guarantee vide order dated 26th March, 2009. Accordingly, the Delhi Transport Corporation were entitled to encashment of the bank guarantee. Consequently, the respondent-assessee became liable to pay to the bank the said amount and this liability had accrued the day the Delhi High Court gave its decision permitting encashment. The factum that the payment was to be made subsequently would not make a difference. The respondent-assessee was held liable to pay interest from the date interim order was passed till payment was made. The second contention is accordingly rejected.”
Respectfully following the decision of the Hon’ble Jurisdictional High Court [supra] we decline to interfere with the findings of the ld. CIT(A). Ground No. 2 is dismissed.
Ground No. 3 relates to deletion of disallowance made on account of depreciation claimed amounting to Rs. 3,28,54,283/-.
The underlying facts in this issue are that the assessee claimed depreciation @ of 25% whereas the Assessing Officer allowed depreciation on BQS @ 15%. We find that the assessee has claimed depreciation on the written down value which means that this is not the initial year of claim of depreciation.
In our considered opinion, unless the claim of the initial Assessment Year is disturbed, no disallowance can be made in the subsequent years of claim. We, therefore, do not find reason to interfere with the findings of the ld. CIT(A). Ground No. 3 is dismissed.
In the result, the appeal of the Revenue in is dismissed.
The order is pronounced in the open court on 03.08.2022.