2006 (9) TMI 148 - HC - Income Tax

Admission fees - Nature of income - the admission fee and contribution to infrastructure development fund paid by the assessee to become a member of the stock exchange is a revenue or capital expenditure ? - HELD THAT - The Supreme Court in Empire Jute Co. Ltd. v. CIT 1980 (5) TMI 1 - SUPREME COURT held that the test of enduring benefit is, therefore, not a certain or conclusive test and the same cannot be applied blindly and mechanically without regard to the facts and circumstances of a given case. In the present case, no new assets had been created and there is no addition to or expansion of the profit-making apparatus of the assessee. Payment of admission fee as well as contribution to infrastructure development is like nature of licence fee and it is paid only for carrying on the business. If any payment is made for the purpose of running the business effectively and efficiently, it is only a revenue expenditure. By becoming a member, the assessee is permitted to make use of the facility provided in the Stock Exchange and hence it is only revenue expenditure. It is seen from the record that there is no dispute by the Revenue in respect of the annual fee paid by the assessee to the Coimbatore Stock Exchange. Thus, we are of the view that the Tribunal is right in holding that amount paid towards admission fee as well as contribution to infrastructure development is revenue expenditure and in view of the same, we answer the questions of law in favour of the assessee and against the Revenue. Hence the tax cases are dismissed.

Issues Involved:
1. Whether the admission fee and contribution to the infrastructure development fund paid by the assessee to become a member of the stock exchange is a revenue expenditure or capital expenditure.
2. Whether the payments made to the Coimbatore Stock Exchange towards the infrastructure development fund and guarantee fund were capital expenditures.

Issue-Wise Detailed Analysis:

1. Admission Fee and Contribution to Infrastructure Development Fund:
The primary issue in T.C. (A) Nos. 67 and 68 of 2003 was whether the admission fee and contribution to the infrastructure development fund paid by the assessee to become a member of the stock exchange should be treated as revenue expenditure or capital expenditure.

The assessee, a share broker, incurred expenses for the admission fee and infrastructure development fund to become a member of the Coimbatore Stock Exchange for the assessment years 1993-94 and 1994-95. The Assessing Officer disallowed these expenses, treating them as capital expenditures. However, the Commissioner of Income-tax (Appeals) allowed the appeal, and the Tribunal upheld this decision, treating the expenses as revenue expenditures.

The Revenue argued that these payments were for acquiring a capital asset, as the membership card provided enduring benefits. They cited various judgments to support their stance, including Rajendra Kumar Bachhawat v. CIT, Satya Narain Modani v. ITO, Ravindra Kumar Jain v. CIT, and Punjab State Industrial Development Corporation Ltd. v. CIT.

The assessee contended that the payments were necessary for becoming a member and did not result in the acquisition of any capital asset. The payments were made to avail facilities provided by the stock exchange, which were essential for carrying on the business.

The court concluded that the payments were necessary for the assessee to carry on its business and did not result in any enduring benefit or acquisition of a capital asset. The court referred to the Supreme Court judgment in Empire Jute Co. Ltd. v. CIT, which emphasized that the test of enduring benefit is not conclusive and must be applied considering the specific facts and circumstances. The court also cited Alembic Chemical Works Co. Ltd. v. CIT, which highlighted the flexibility in distinguishing between capital and revenue expenditures based on business realities.

The court held that the payments were akin to a license fee for carrying on business and were, therefore, revenue expenditures. The Tribunal's decision was upheld, and the questions of law were answered in favor of the assessee.

2. Payments to Infrastructure Development Fund and Guarantee Fund:
In T.C. (A) No. 920 of 2005, the issue was whether the payments made to the Coimbatore Stock Exchange towards the infrastructure development fund and guarantee fund were capital expenditures.

The assessee appealed against the Tribunal's decision, which treated these payments as capital expenditures. The court, following its reasoning in T.C. (A) Nos. 67 and 68 of 2003, held that these payments were revenue expenditures. Consequently, the first question of law was answered in favor of the assessee, and the second question became academic and did not require consideration.

In conclusion, the court ruled that the payments made by the assessee towards the admission fee, infrastructure development fund, and guarantee fund were revenue expenditures necessary for carrying on the business and did not result in any enduring benefit or acquisition of a capital asset. The appeals were dismissed in favor of the assessee, and no costs were awarded.

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