CIT, FARIDABAD vs. M/S HEENA EXPORT CORPORATION

This order shall dispose of ITA Nos. 607 and 608 of 2010 as they arise from common order of the Tribunal dated 16.7.2009 and involve similar questions of law. For brevity, the facts are being extracted from ITA No. 607 of 2010. 2. This appeal has been filed by the revenue under Section 260A of the Income Tax Act, 1961 (in short “the Act”) against the order dated 16.7.2009 passed by the Income Tax Appellate Tribunal, Delhi Bench “C”, New Delhi, in ITA No. 2212/Del/2008 for the assessment year 2001-02, claiming the following substantial questions of law:- “I. Whether on the facts and in the circumstances of the case, the Ld. ITAT was right in law in upholding the order of the Ld. CIT (A) to the effect that the -2- expenditure of Rs.2,19,466/- is revenue expenditure to be allowed u/s 37(1) of the Income Tax Act, 1961 even though the payments may be enduring benefit to the assessee firm for the period of 5 years as claimed by the assessee? II. Although tax involved is Rs.82,146/- which is less than the monetary limits laid down by the CBDT's Instructions No. 5/2008 dated 15,.05.2008 issued u/s 268A of the Income Tax Act, 1961, yet the appeal is being filed as per para 5 of the said Instruction because it is a case of composite order of the ITAT which involved Asstt. Years 2001-02 and 2004-05 and tax effect involved in one year i.e. in Asstt. Year 2004-05 [Rs.4,33,030/-] which is more than the monetary limits prescribed in para 3 of the said Instruction?”

Briefly stated, the facts necessary for adjudication as narrated in the appeal are the assessee filed its return on 28.9.2001 for the assessment year 2001-02 declaring an income of Rs.5,65,491/-. The assessment was completed on 5.12.2006 making some additions by the Assessing Officer. Against the order of the Assessing Officer, the assessee preferred an appeal before the Commissioner of Income Tax (Appeals) [in short “the CIT (A)”] who while partly allowing the appeal gave a relief of Rs.9,67,520/- to the assessee. Feeling aggrieved, the department took the matter in appeal before the Tribunal and the Tribunal vide its order dated 16.7.2009 upheld the view of the CIT(A)

We have heard learned counsel for the appellant.

The point for consideration in this appeal is whether the expenses incurred on construction of tennis court are allowable as revenue expenses or are capital in nature.

The Assessing Officer had disallowed the expenditure incurred on construction of tennis court by holding the same to be capital in nature, as according to him, the benefit of enduring nature had been evolved and, therefore, not admissible in the year under consideration. However, the CIT(A) while allowing the appeal of the assessee had held in para 8.4 of its order as under:- “8. 4. I have carefully considered the submissions of the Ld. A.R. and perused the order of re-assessment as well as other documents on record. The Ld. A.R. has made fresh arguments regarding the AO's action for the disallowance of the above expenditure u/s 35D. She has brought to my notice that there is no such evidence on records regarding the amortization of such expenditure u/s 35D either in the Profit & Loss A/c or in the computation of income. Actually, such expenditure was not a preliminary expense as envisaged in Section 35D and the expenditure was simply routine incurred particularly every year and hence was not to be considered u/s 35D, which is the AO's own opinion. As the facts of the case stand, the expenditure is spent upon a tennis court named “Black Rose Tennis Court”, which clearly shows the business title of the appellant firm -4- and hence a revenue expenditure. From the examination of the documents pertaining to incurring of such expenditure, like its letter written to Haryana State Sports Complex, Faridabad for the approval of name of the tennis court as “Black Rose Lawn Tennis Court” and other documents pertaining to Syncotts International and Haryana State Sports Complex, Faridabad and District Sports Council, Faridabad and the newspaper cuttings places at pages 91, 92 & 93 of the paper book, it becomes quite evident that the appellant firm had no ownership on this court and it was with the State Administration. The tennis court came into existence with the brand name of the appellant firm “Black Rose”, and, therefore, it was explained to be in the nature of advertisement because the expenditure itself was borne by the appellant firm for the sake of advertising its brand name Black Rose. Moreover, the expenditure is also not of capital nature as the AO has pointed out because according to him it has an enduring benefit. As the law now stands, the Apex Court has clearly laid down its decision in the case M/s Empire Jute Mills Limited versus CIT 124 ITR 1, that the test of benefit of enduring nature of the expenditure for the purpose of determining it to be capital or revenue is not the sure test, and if the expenditure is incurred in the commercial sense or the interest of commercial expediency, even the benefit may be enduring, on the facts and circumstances the -5- expenditure is revenue to be allowable u/s 37(1) of the I.T. Act. As is evident from the past history of the present case as well as clarity of the facts and the circumstances of the case now brought as above, the expenditure on Black Rose Tennis Court by the appellant firm is allowable u/s 37(1) of the Act and hence the disallowance of Rs.2,19,466/- is deleted.”

The said finding was upheld by the Tribunal. It was concluded that the ownership of the tennis court was not that of the assessee. Further, the assessee in order to promote its brand, had named the tennis court in its brand name. In fact, the ownership vested with the State Administration and the nature of expenditure was revenue.

No error could be pointed out by the learned counsel for the revenue in the findings recorded by the CIT(A) and affirmed by the Tribunal which may warrant interference by this Court. Accordingly, no substantial question of law arises in these appeals and the same are hereby dismissed. (AJAY KUMAR MITTAL) JUDGE January 31, 2011 (ADARSH KUMAR GOEL) gbs JUDGE -6- IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH ITA No. 608 of 2010 Date of Decision: 31.1.2011 Commissioner of Income Tax, Faridabad ....Appellant. Versus M/s Heena Export Corporation ...Respondent. CORAM:- HON'BLE MR. JUSTICE ADARSH KUMAR GOEL. HON'BLE MR. JUSTICE AJAY KUMAR MITTAL. PRESENT: Ms. Urvashi Dhugga, Advocate for the appellant.