2011 (1) TMI 918 - HC - Income Tax

Business expenditure- expenditure for restructuring and viability study and preparation of restructuring proposal- Held that - Expenditure towards consultation charges for restructuring of the company is for earning income and is in conformity with the provisions of section 37 of the Act. - Company had incurred expenditure on legal financial and industrial consultation then it could not be said to be outside the purview of business of the company. - See CIT v. South India Sugars Ltd.(2004 -TMI -10417- Madras High Court). - Decided in favor of the assessee.

Summary

Issues:
1. Whether the expenditure for restructuring and viability study is of capital nature or revenue expenditure.

Analysis:
The High Court was approached by the revenue challenging the Tribunal's order regarding the nature of expenditure incurred by an assessee-company for restructuring. The revenue claimed that the expenditure should be treated as capital in nature due to its enduring advantage, while the Tribunal considered it as revenue expenditure for enhancing sales or earning income. The Court noted that there is no statutory definition of 'capital expenditure' and emphasized that the term should be interpreted in a business sense. The expression 'capital expenditure' connotes permanency and enduring benefit to the enterprise, while revenue expenditure is operational and intended for the furtherance of the enterprise.

The Court referred to a Division Bench judgment of the Madras High Court in CIT v. South India Sugars Ltd., where it was held that expenditure on legal, financial, and industrial consultation could be considered within the purview of the company's business. Similarly, in the present case, the Tribunal found that the expenditure towards consultation charges for restructuring, paid to Chartered Accountants and Asset Care Enterprise Ltd., was incurred for earning income and in conformity with section 37 of the Income-tax Act. The Court upheld the Tribunal's decision, stating that the view taken by the Tribunal was unexceptionable. The Court concluded that no question of law warranting admission of the appeal arose, and the appeal was dismissed as wholly without merit.