2011 (6) TMI 6 - HC - Income Tax

Capital or revenue expenditure - one time payment made to Mahanagar Gas Ltd. by the assessee company towards CNG connection charges - enduring benefit to the assessee - In the present case, the finding recorded by the Tribunal is that the assets remained the property of Mahanagar Gas Ltd. and that the sole object of payment was to get gas to facilitate the manufacturing activity carried on by the assessee - expenditure allowed as revenue expenses - Appeal dismissed

Summary

Issues:
1. Whether the payment made by the assessee company towards CNG connection charges should be treated as revenue expenditure or capital contribution.

Analysis:
The main issue in this case revolved around determining whether the payment of Rs.45,21,000 made by the assessee company towards CNG connection charges should be considered as revenue expenditure or capital contribution. The assessing officer disallowed the claim, arguing that the payment was a capital contribution towards acquiring assets before the commencement of gas supply. However, the CIT(A) allowed the appeal, stating that the expenditure was an integral part of the profit-earning process and not for acquiring a permanent asset.

The Tribunal upheld the CIT(A)'s decision, emphasizing that the payment did not grant the assessee any right or control over the gas facility. The Tribunal considered the facilities essential for supplying gas to the assessee's work, thereby aiding in the profit-earning process without providing enduring benefits. The Tribunal relied on various judgments, including those of the Supreme Court and the High Court, to support its decision.

The counsel for the revenue contended that the payments were for assets intended to provide enduring benefits to the assessee. Referring to previous judgments, the revenue argued that even expenditures for enduring benefits could be considered revenue account items. However, the Tribunal's finding that the assets remained the property of Mahanagar Gas Ltd. and the payment's sole purpose was to facilitate the manufacturing activity supported the conclusion that the payment should be treated as revenue expenditure.

In conclusion, the High Court dismissed the appeal, stating that the payment made by the assessee towards CNG connection charges was revenue expenditure. The Court found no fault with the Tribunal's decision, emphasizing that the payment was integral to the profit-earning process and did not provide enduring benefits to the assessee.