2013 (10) TMI 1367 - HC - Income Tax

Allowability of expenditure - revenue expenses - Held that - As in the case of Commissioner of Income TaxI vs. Gujarat State Fertilizer & Chemicals Limited rendered 2013 (6) TMI 776 - GUJARAT HIGH COURT wherein the Division Bench of this Court has held that once the expenditure is held to be in revenue in nature incurred wholly and exclusively for the purpose of business, it can be allowed in its entirety in the year in which it is incurred. In view of the above direct decision of this Court, question no.1 in respective appeals is required to be held in favour of assessee and against the revenue by holding that the respective Corporate Debt Restructuring expenses was revenue expenditure and the same was required to be allowed in the respective assessment years. Lease rent was deductible as revenue expenditure.

Summary

Issues:
- Whether Corporate Debt Restructuring expenses should be treated as revenue expenditure or capital expenditure.
- Whether the expenses should be allowed in the year incurred or spread over multiple years.

Analysis:

Corporate Debt Restructuring Expenses:
In a series of appeals, the appellant contested the treatment of Corporate Debt Restructuring expenses as revenue or capital expenditure. The appellant claimed deductions for these expenses in the respective assessment years when they were incurred. However, the Assessing Officer (AO) disallowed the deductions, stating that the expenses should be spread over multiple years for the benefit of such restructuring. The Commissioner of Income Tax (CIT) upheld the AO's decision. The Income Tax Appellate Tribunal (ITAT) dismissed the appeals, holding that the expenses should be spread over several years. The appellant argued that the expenses were revenue in nature and should be allowed in full in the year incurred. The High Court referred to previous judgments and held that if the expenditure is incurred wholly and exclusively for the purpose of business, it can be allowed in its entirety in the year it is incurred. Therefore, the Court ruled in favor of the appellant, allowing the Corporate Debt Restructuring expenses in the respective assessment years.

Amortisation of Lease Rent:
Another issue raised in the appeals was the treatment of lease rent amortization as capital expenditure. The ITAT held that the amortization of lease rent was capital expenditure. However, the appellant argued that previous court decisions supported treating lease rent as revenue expenditure. The High Court agreed with the appellant, citing decisions from the Supreme Court and previous High Court judgments. The Court held that the lease rent amortization should be treated as revenue expenditure, not capital expenditure. Consequently, the Court ruled in favor of the appellant on this issue as well.

Conclusion:
The High Court allowed all the appeals, holding in favor of the appellant on both issues. The Court determined that the Corporate Debt Restructuring expenses should be treated as revenue expenditure and allowed in the respective assessment years. Additionally, the Court ruled that the amortization of lease rent should be considered as revenue expenditure, not capital expenditure. As a result, the Court allowed the appeals, providing relief to the appellant on both matters.