HARYANA WAREHOUSING CORP. vs. ASSTT. COMMR. OF INCOME TAX

ITA/317/2008HC Punjab & HaryanaPHHC01080296200820 April 2011Author: MR. JUSTICE AJAY KUMAR MITTAL,MR. JUSTICE ADARSH KUMAR GOEL4 pages
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What were the facts?

The assessee, Haryana Warehousing Corporation, filed its return for assessment year 2001-02 declaring nil income, claiming exemption under Section 10(29) of the Income Tax Act, 1961, for income from wheat and paddy trading as an agent of the Government and FCI. The assessee also claimed an expenditure of Rs. 1,00,06,000/- on Information and Technology training, stating it was for modernizing the Corporation's working. The Assessing Officer disallowed this expenditure, deeming it not for business expediency. The CIT(A) allowed deduction of indivisible expenses but treated the IT expenditure as capital. The Income Tax Appellate Tribunal upheld the CIT(A)'s order, dismissing the assessee's appeal. The assessee then appealed to the High Court.

What did the High Court hold?

The High Court held that the Tribunal was in error in disallowing the expenditure on information and technology training. Following its own decisions in Commissioner of Income-Tax v. Varinder Agro Chemicals Limited and M/s O.K. Play India Ltd., the Court observed that computer software, which is part of IT expenditure, is not of an enduring nature and becomes outdated quickly due to rapid technological advancements. Such expenses are akin to raw material. Therefore, the IT expenditure was directly connected with the business of the assessee and eligible for deduction under Section 37 of the Act on the principle of commercial expediency. The question of law was answered in favour of the assessee.

What were the issues?

1. Whether the Income Tax Appellate Tribunal was right in law in disallowing the expenditure of Rs.1,00,06,000/- incurred on Information & Technology training connected with the business of the Corporation as business expenditure and on the principle of commercial expediency, under Section 37 of the Income Tax Act, 1961? Assessee's contentions: The expenditure on information and technology training was connected with the business of the Corporation and was incurred out of commercial expediency, making it allowable as business expenditure under Section 37 of the Act. The lower authorities erred in treating it as capital expenditure of an enduring nature. The assessee relied on this Court's decisions in Commissioner of Income-Tax v. Varinder Agro Chemicals Limited and The Chief Commissioner of Income-Tax (OSD), Faridabad v. M/s O.K. Play India Ltd. Revenue's contentions: The revenue supported the order passed by the Tribunal.

Which sections of the Income-tax Act were involved?

Section 10(29),Section 37

AI-generated summary — verify with the full judgment below

-1- IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH Date of Decision: 20.4.2011 Haryana Warehousing Corporation ....Appellant. Versus Assistant Commissioner of Income Tax ...Respondent. CORAM:- HON'BLE MR. JUSTICE ADARSH KUMAR GOEL. HON'BLE MR. JUSTICE AJAY KUMAR MITTAL. PRESENT: Mr. Rajesh Garg, Advocate for the appellant. Mr. Yogesh Putney, Senior Standing Counsel, for the respondent. AJAY KUMAR MITTAL, J.

1.

This Court on 17.10.2008 admitted the appeal for determination of question No. (iv) which is as under:- “(iv) Whether the Income Tax Appellate Tribunal was right in law in disallowing the expenditure of Rs.1,00,06,000/- incurred on Information & Technology training connected with the business of the Corporation as business expenditure and on the principle of commercial expediency?”

2.

Put shortly, the facts necessary for disposal as narrated in the appeal are that the assessee filed its return for the assessment year -2- 2001-02 on 29.10.2001 declaring nil income claiming the entire income including the income from wheat and paddy trading as agent of the Government and Food Corporation of India (FCI) as exem

The order continues below.

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