C I T vs. M/S PUNJAB STATE INDUS. DEV. CORP. LTD.

The following substantial questions of law have been claimed for determination of this Court: “(i) Whether on the facts and circumstances of the case, the Hon’ble ITAT is justified in law in holding that the sale of investments by the assessee was a capital gain and not profit and gain from business, whereas the main business of the assessee is to make investments and earn profit from realisation of the same? (ii) Whether on the facts and circumstances of the case, the Hon’ble ITAT is justified in law in holding that the project survey expenses should be treated as revenue expenditure whereas the project survey expenses are in the nature of capital expenditure? (iii) Whether on the facts and circumstances of the case, the Hon’ble ITAT is justified in law in holding that the commitment charges/upfront fees was allowable in view of the Board’s Circular No. 2-P(XI-6), (F. No. 10-67/65-IT (A-1) dated 23.8.1965 whereas the same is capital expenditure and not expenditure?

The facts, in brief, necessary for adjudication as narrated in the appeal, are that the respondent-assessee is a financial institution of the Punjab Government which provides term lending and financing industry/business. The assessee filed its return for the assessment year 2003-04 on 27.11.2003 declaring total loss of Rs. 85,13,72,560/- along with brought forward losses of Rs.1,69,75,27,485/-. The assessee adjusted long term capital gain of Rs. 46,68,725/- and dividend income of Rs. 1,00,37,108/- against the losses. The return was processed under Section 143(1) and Income Tax Appeal No. 347of 2008 3 refund was issued to the assessee. The assessee thereafter filed revised return on 3.1.2005 showing total loss including the brought forward loss, amounting to Rs.3,12,31,66,140/-. While making assessment under Section 143(3) on 20.12.2005, the assessing officer vide order dated 20.12.2005 made various additions and disallowances.

The appeal carried by the assessee was allowed by the Commissioner of Income Tax (Appeals) [for short “the CIT(A)”], vide learned counsel that the commitment charges/upfront fees was capital expenditure and the Tribunal had erred in law in allowing the same as revenue expense.

We find no substance in the submission. The CIT(A) while adjudicating the issue in favour of the assessee noticed that the Income Tax Appeal No. 347of 2008 4 assessee had incurred commitment charges/upfront fees for securing short term loan from the IDBI. The expenses incurred fell within the expression ‘any service fee or other charges in respect of the moneys borrowed’ and was, therefore, admissible as revenue expense. The said finding was affirmed by the Tribunal.

Learned counsel for the revenue was unable to demonstrate that the said finding was erroneous or perverse in any manner. Accordingly, the third question is also answered against the revenue.

In view of the above, finding no merit in the appeals, the same are dismissed. (AJAY KUMAR MITTAL) JUDGE (ADARSH KUMAR GOEL) July 18, 2011 ACTING CHIEF JUSTICE *rkmalik*