2009 (6) TMI 691 - AT - Income Tax

Summary

Issues Involved:
1. Limitation period for filing the appeal.
2. Treatment of commission payment as capital or revenue expenditure.

Summary:

1. Limitation Period for Filing the Appeal:
The Registry issued a defect memo to the assessee stating that the appeal was barred by limitation of 24 days. The assessee responded, explaining a clerical error in the date of communication of the CIT(A)'s order. The correct date was provided, and the appeal was deemed filed within the permissible time. Consequently, the parties were heard on merits.

2. Treatment of Commission Payment:
The sole ground of appeal was whether the commission payment of Rs. 13,99,803 to Pramaki Finvest (P.) Ltd. should be treated as capital or revenue expenditure. The assessee argued that the payment was for upgradation of technology and improvement in yield and quality of products, thus qualifying as revenue expenditure u/s 37 of the Income-tax Act, 1961. The Assessing Officer disallowed the claim, treating it as capital expenditure, and this view was upheld by the CIT(A).

The CIT(A) observed that the payments were linked to the acquisition of capital assets and technical know-how, providing enduring benefits to the assessee. The CIT(A) drew support from the Supreme Court decision in the case of CIT v. Assam Bengal Cement Ltd., concluding that the payments were capital in nature.

The assessee contended that the expenditure was incurred wholly and exclusively for business purposes and should be treated as revenue expenditure. The assessee cited the Supreme Court decision in Eastern Investments Ltd. v. CIT to support their claim.

The Tribunal examined the facts and found that the payments were based on the quantity of products sold and were not related to a specific capital sum. The Tribunal concluded that such payments should be treated as revenue expenditure, drawing support from the decisions in CIT v. Sarada Binding Works and Jonas Woodhead & Sons Ltd. v. CIT. Consequently, the depreciation allowed on the expenditure by treating it as capital expenditure was to be withdrawn.

Conclusion:
The Tribunal allowed the appeal, treating the commission payment of Rs. 13,99,803 as revenue expenditure.