2010 (2) TMI 907 - HC - Income Tax

Sales tax and excise duty collected during the assessment year - whether would not form part of the total turnover before computing the deduction for the purpose of computing deduction u/s 80HHC Whether the appellate authorities were correct in not taking into consideration the Explanation to section 80HHC r.w.s. 80AB which clearly enunciates that for the purpose of com-putation of deduction under section 80HHC of the total turnover including all expenses should be taken into consideration - Held that - In view of Lakshmi Machine Works(2007 (4) TMI 202 - SUPREME Court the said questions are answered against the Revenue and in favour of the assessee. Membership fee payable to the club - whether be treated as a revenue expenditure and was allowable deduction and not a capital expenditure as held by the Assessing Officer Held that - The said question has to be reconsidered by the AO by looking into the facts and circumstances of the assessee for the relevant assessment year by strictly following the observations made by this court in CIT v. Wipro Systems 2009 (11) TMI 402 - KARNATAKA HIGH COURT - matter is remanded to the Assessing Officer for reconsedration.

Summary

Issues:
1. Challenge to order by Revenue
2. Substantial questions of law regarding deduction under section 80HHC
3. Treatment of membership fee as revenue or capital expenditure

Analysis:
1. The Revenue challenged an order passed by the Commissioner of Income-tax (Appeals), later affirmed by the Income-tax Appellate Tribunal, Bangalore, for the assessment year 1997-98.

2. The appeal was admitted to address substantial questions of law. The Tribunal's decision on whether sales tax and excise duty should be part of total turnover for computing deduction under section 80HHC was upheld based on a Supreme Court ruling. Additionally, the appellate authorities' decision not considering the Explanation to section 80HHC was also affirmed against the Revenue.

3. The issue of treating membership fees paid to clubs as revenue or capital expenditure was discussed. Referring to a previous case, the court directed the Assessing Officer to reconsider this matter based on specific guidelines provided, emphasizing a thorough examination of the facts and circumstances of the assessee for the relevant assessment year.

4. The court concluded by disposing of the appeal without addressing the last question and remanding the matter to the Assessing Officer solely for a detailed consideration of the treatment of membership fees as either revenue or capital expenditure based on the facts of the case.