2010 (12) TMI 1194 - AT - Income Tax

Summary

Issues Involved:
1. Allowability of expenditure on production of advertisement films as business expenditure.
2. Allowability of club membership fees as business expenditure.
3. Allowability of expenditure on acquiring software as revenue expenditure.

Summary:

Issue 1: Allowability of expenditure on production of advertisement films as business expenditure.
The Assessing Officer (AO) disallowed the expenditure of Rs. 10,93,93,677/- incurred on production of advertisement films, treating it as capital expenditure. The CIT(A) allowed the expenditure as business expenditure, relying on the Tribunal's decision in the assessee's own case for earlier years. The Tribunal upheld the CIT(A)'s order, distinguishing the facts from the case of Patel International Film Ltd., and citing the Bombay High Court judgment in Geoffrey Manners and Co. Ltd., which held that expenditure on advertisement films for ongoing business is revenue in nature. The Tribunal dismissed the AO's appeal on this issue.

Issue 2: Allowability of club membership fees as business expenditure.
The AO disallowed the expenditure of Rs. 2,18,977/- incurred on obtaining club membership fees. The CIT(A) allowed the expenditure, and the Tribunal upheld this decision, citing the Bombay High Court judgment in Otis Elevator Co. (I) Ltd. v. CIT, which held that club membership fees are allowable as business expenditure. The Tribunal dismissed the AO's appeal on this issue.

Issue 3: Allowability of expenditure on acquiring software as revenue expenditure.
The AO disallowed the expenditure of Rs. 11,17,245/- on software, treating it as capital expenditure. The CIT(A) allowed the expenditure as revenue expenditure, relying on Tribunal decisions in IBM India Ltd. and Citicorp Overseas Software Ltd. The Tribunal remitted the matter back to the AO for fresh adjudication in light of the Special Bench decision in Amway India Enterprises, which provides guidelines for determining the nature of software expenses. The Tribunal allowed this ground for statistical purposes.

Conclusion:
The appeal was partly allowed for statistical purposes, with the Tribunal upholding the CIT(A)'s decisions on advertisement films and club membership fees, and remitting the issue of software expenditure back to the AO for reconsideration.