2001 (11) TMI 62 - HC - Income Tax

Summary

Issues:
1. Deductibility of cost of laying a cement surfaced tennis court as capital expenditure.
2. Treatment of expenditure on common facilities in employee's lay-outs as capital expenditure.
3. Classification of guarantee commission paid by the assessee as capital or revenue expenditure.

Analysis:
1. The first issue pertains to the deductibility of the cost of laying a cement surfaced tennis court as capital expenditure. The Tribunal had previously held that this expense is revenue expenditure, as the surfacing of the court does not result in a permanent benefit due to the need for periodic repairs. The High Court agreed with the Tribunal's view, emphasizing that the expenditure on surfacing the tennis court was rightly considered revenue expenditure as the benefit was not enduring.

2. The second issue involves the treatment of expenditure incurred by the assessee on common facilities in employee's lay-outs as capital expenditure. The High Court determined that the money given by the assessee to employees for the formation of roads, street lights, and wells in a housing colony was a subsidy or benefit for the welfare of employees, not capital expenditure. Since the land was not owned by the company, the expenditure was deemed to be in the nature of revenue expenditure, aligning with the purpose of benefiting the employees.

3. The final issue concerns the classification of guarantee commission paid by the assessee as capital or revenue expenditure. The High Court referenced the Supreme Court decision in CIT v. Sivakami Mills Ltd., where it was established that commission paid for securing guarantees on deferred payment for capital assets is considered revenue expenditure. Similarly, in this case, the guarantee commission paid by the assessee for securing capital assets was deemed to be revenue expenditure. Consequently, the High Court ruled in favor of the assessee on all three questions, highlighting that the guarantee commission was not a capital expenditure.

In conclusion, the High Court's judgment favored the assessee, affirming that the expenses related to the tennis court, common facilities in employee's lay-outs, and guarantee commission were all to be treated as revenue expenditure, not capital expenditure, for the assessment year in question.