2002 (2) TMI 36 - HC - Income Tax

1. Whether on the facts and in the circumstances of the case the Tribunal was right in holding in law that the expenditure of Rs. 35, 207 incurred for the purchase of T.V. set for the staff was a revenue expenditure? - 2. Whether on the facts and in the circumstances of the case the Tribunal was legally correct in holding that the expenses of Rs. 1 lakh incurred by the assessee to get extension of mining lease was a revenue expenditure? - Thus the questions raised by the Revenue are purely questions of fact decided on the basis of the material on record. In our opinion no referable question of law arises from the order of the Tribunal. - Consequently the reference application is rejected.

Summary

Issues:
1. Determination of whether the expenditure for purchasing a T.V. set for staff is a revenue expenditure.
2. Determination of whether the expenses incurred for the extension of a mining lease are considered revenue expenditure.

Issue 1: Expenditure on T.V. Set
The case involves a company engaged in manufacturing and trading that faced scrutiny regarding expenses during the assessment year 1988-89. The company had debited the cost of a T.V. set for the staff under "Staff and Labour Welfare Expenses." The Assessing Officer considered this as capital expenditure, rejecting the company's claim of it being a revenue expenditure. The Commissioner of Income-tax (Appeals) also rejected the appeal. However, the Tribunal found the T.V. set expense to be a legitimate business expenditure for staff welfare, with ownership vested in the club, not the company. The High Court concurred, stating that providing the T.V. set to the recreation club of workers was a routine staff welfare measure, constituting a legitimate business expenditure.

Issue 2: Fees for Mining Lease Renewal
Regarding the payment of Rs. 1 lakh to a consultant for renewal of the mining lease, the Assessing Officer treated it as capital expenditure due to the enduring benefit acquired. However, the Tribunal disagreed, stating that the payment was to facilitate the existing mining lease, not acquire a new one, thus not constituting capital expenditure. The High Court concurred, emphasizing that the payment was made to extend the lease and did not confer an enduring benefit. The Court noted that the questions raised by the Revenue were factual in nature, decided based on the evidence, and did not give rise to any legal questions for reference. Consequently, the High Court rejected the reference application by the Revenue.

This detailed judgment by the High Court of Rajasthan addressed two key issues related to the nature of expenditures incurred by the company. It clarified the distinction between revenue and capital expenditure, emphasizing the enduring benefit criterion for capital expenditure. The Court upheld the Tribunal's findings that the T.V. set expense was a legitimate business expenditure for staff welfare and that the payment for mining lease renewal did not confer an enduring benefit, thus not qualifying as capital expenditure. The judgment provides a comprehensive analysis of the facts, legal principles, and application to the specific circumstances of the case, ultimately rejecting the Revenue's reference application.