2014 (6) TMI 958 - HC - Income Tax

Deduction for provision made on account of liability towards contribution to Drug Price Equalization Account (DPEA) - ITAT allowed the claim - Held that - The Tribunal in the instant case has followed the judgment of the Honourable Supreme Court in the case of Kedarnath Jute Mfg. Co. Ltd. v. CIT 1971 (8) TMI 10 - SUPREME Court . In view thereof and finding that the Tribunal s order is in consonance with the facts and circumstances of the case, so also, the statutory liability having been created in the year in question and which has no bearing on the pending proceedings initiated by the Assessee or the dispute raised therein that we find that this question cannot be termed as substantial question of law. Deduction u/s 43B on account of non payment of Sales Tax - - ITAT allowed the claim - Held that - Tribunal has held in favour of the Assessee by observing that the liability in relation thereto was also an issue raised for Assessment Year 1984-1985. . The Revenue surprisingly does not question the common order of the Tribunal for these years. See CIT v. Hindustan Lever Ltd 2014 (4) TMI 1012 - BOMBAY HIGH COURT . The question will have to be decided against the Revenue and in favour of the Assessee. Expenses incurred on installation of computer software, expenses on electrical work and expenses on installation of lifts - whether fall within the ambit of revenue expenditure? - Held that - In relation to this the Tribunal in the impugned order observed that there is room for certain flexibility in the views taken from time to time. The Assessee in such cases installs the computers. This technology is now said to be acceptable in changing world. The rapid advancement of research also contributes a small degree of endurability, but that by itself does not mean that the expenses incurred cannot be revenue in nature. Since technology advancement is an aspect which must be taken judicial note of, so also, machinery becoming obsolete that there is necessity of acquiring further technology. This is to meet the growing competition and considering trends in the market. Therefore, such expenditure will have to be treated as revenue expenditure - Decided in favour of the Assessee.

Summary

Issues:
1. Deduction for provision made on account of liability towards Drug Price Equalization Account (DPEA).
2. Deduction under Section 43B for non-payment of sales tax.
3. Classification of expenses on installation of computer software, electrical work, and lifts as revenue expenditure.

Issue 1 - Deduction for DPEA Liability:
The Revenue challenged the Tribunal's decision allowing deduction for the provision made on account of liability towards DPEA, contending that the liability was contingent and had not crystallized during the previous year due to ongoing legal proceedings. The Assessee argued that the liability was ascertainable and statutory, thus allowable in the year it arose. The Tribunal relied on the Supreme Court's judgment in Kedarnath Jute Mfg. Co. Ltd. v. CIT and held that the liability was created in the relevant year, irrespective of the Assessee's dispute. The Assessee's consistent view and the decision in Glaxosmithkline Pharmaceuticals Ltd.'s case supported this stance, leading to the dismissal of the Revenue's appeal.

Issue 2 - Deduction under Section 43B for Sales Tax:
Regarding the deduction under Section 43B for non-payment of sales tax, the Tribunal ruled in favor of the Assessee, citing a previous case where a similar issue was decided in the Assessee's favor. The Division Bench also supported the Assessee's position, referencing a judgment in CST v. Empico Traders. The Tribunal's decision was deemed correct, especially since a similar issue in another case had been settled against the Revenue. The judgment in CIT v. Hindustan Lever Ltd. further supported the Assessee's claim, resulting in the dismissal of the Revenue's appeal on this issue.

Issue 3 - Classification of Expenses as Revenue Expenditure:
The final issue pertained to whether expenses incurred on computer software, electrical work, and lifts installation should be classified as revenue expenditure. The Revenue argued against this classification, emphasizing enduring benefits. However, the Tribunal noted the necessity of adapting to technological advancements and market trends to remain competitive. Citing previous decisions and the judgment in CIT v. Raychem RPG Ltd., the Tribunal upheld the classification of these expenses as revenue expenditure, aligning with established principles and technological advancements. Consequently, the Court found no substantial question of law in this matter and dismissed the appeals.

In conclusion, the High Court of Bombay upheld the Tribunal's decisions on all three issues, dismissing the Revenue's appeals and affirming the classification of expenses and deductions in favor of the Assessee.