2011 (1) TMI 928 - HC - Income Tax

Allowable u/s 37(1)- Whether the expenses incurred on construction of tennis court are allowable as revenue expenses or are capital in nature - The Apex Court has clearly laid down its decision in the case M/s Empire Jute Mills Limited versus CIT (1980 -TMI - 5837 - SUPREME Court) that the test of benefit of enduring nature of the expenditure for the purpose of determining it to be capital or revenue is not the sure test and if the expenditure is incurred in the commercial sense or the interest of commercial expediency even the benefit may be enduring on the facts and circumstances the expenditure is revenue to be allowable u/s 37(1) of the I.T. Act - Hence the expenditure on Black Rose Tennis Court by the appellant firm is allowable u/s 37(1) of the Act and hence the disallowance of Rs.2, 19, 466/- is deleted - These appeals is dismissed.

Summary

Issues:
1. Whether the expenditure on the construction of a tennis court is allowable as revenue expenses or capital in nature?

Analysis:
1. The case involved two appeals arising from a common order of the Tribunal dated 16.7.2009, concerning similar questions of law. The revenue filed an appeal against the Tribunal's order regarding the allowance of an expenditure under Section 37(1) of the Income Tax Act, 1961. The main issue was whether the expenditure of Rs.2,19,466 on the construction of a tennis court should be treated as revenue expenses or capital in nature.

2. The assessee had filed its return for the assessment year 2001-02, declaring an income of Rs.5,65,491. The Assessing Officer made additions, which were partly allowed by the CIT(A), granting relief to the assessee. The revenue then appealed to the Tribunal, which upheld the CIT(A)'s view. The revenue further appealed to the High Court, challenging the treatment of the expenditure on the tennis court.

3. The key point for consideration was whether the expenses incurred on the construction of the tennis court should be treated as revenue expenses or capital expenditure. The Assessing Officer had initially disallowed the expenditure as capital in nature due to the enduring benefit derived from it. However, the CIT(A) allowed the appeal, considering the expenditure as revenue in nature, primarily for advertising purposes.

4. The CIT(A) emphasized that the expenditure was routine and not of a preliminary nature as envisaged under Section 35D. The tennis court was named after the appellant firm, serving as a form of advertisement. The Tribunal concurred with this view, highlighting that the ownership of the court lay with the State Administration, and the expenditure was revenue in nature.

5. The High Court found no error in the findings of the lower authorities and concluded that the expenditure on the tennis court was revenue in nature, eligible for allowance under Section 37(1) of the Income Tax Act. As no substantial question of law arose, the appeals by the revenue were dismissed.

This detailed analysis outlines the progression of the case, the arguments presented by the parties, and the reasoning behind the decision regarding the treatment of the expenditure on the tennis court as revenue expenses rather than capital in nature.