2015 (8) TMI 914 - AT - Income Tax

Expenditure on FCCB and debenture issue - CIT(A) allowing expenditure under section 35D considering the expenditure as public issue - Held that - Qualified Institutional Buyers (QIBs) are a class of investors as a part of the large investor community and the companies sought for QIB issues because the funds can be raised within a short span. This is an extremely important investment for larger investors and since the buyers are only a class of investors, the issue of shares to QIB have been considered as public issue. The expenses in connection with public issue of shares or debentures of the company are allowable. Reliance is placed on CIT v. Shree Synthetics Ltd. 1985 (11) TMI 45 - MADHYA PRADESH High Court . Hence on the merits of the issue, the QIB expenditure can be treated as revenue expenditure and eligible for deduction under section 35D of the Income-tax Act is confirmed. - Decided against revenue. Expenditure on account of the editorial content and brand right expenditure - revenue v/s capital expenditure - CIT(A) allowed assessee claim - Held that - Assessing Officer disallowed the expenditure on the grounds that the expenditure has not been claimed under section 35A. It is pertinent to note are ephemeral and transitory in nature in as much as they are a part of a continuous process and need to be expended in order to generate and increase the brand recall and sustain it in the minds of customer. The Supreme Court in the case of Alembic Chemical Works Co. Ltd. v. CIT 1989 (3) TMI 5 - SUPREME Court has itself observed that the idea of once for all payment and enduring benefit are not to be treated as something akin to statutory conditions ; nor are the notions of capital or revenue a judicial fetish. What is capital expenditure and what is revenue are not eternal verities but must needs to be flexible so as to respond to the changing economic realities of business. The expression asset or advantage of an enduring nature , was evolved to emphasise the element of a sufficient degree of durability appropriate to the context. The expenditure is essentially revenue in nature and the decision to treat the same as deferred revenue only represents a management decision taken in view of the magnitude of the expenditure involved. The expense in question is to be treated a deferred revenue expenditure and allowed as claimed by the appellant. With respect to Asian age brand rights and editorial contends rights, we find that the Commissioner of Income-tax (Appeals) has allowed the Asian age brand rights and editorial contents rights in the assessment year 2006-07 and the department did not file appeal accepting the order of Commissioner of Income-tax (Appeals)and hence is estopped from filing appeal on the same issue in this year (being subsequent year). - Decided against revenue.

Summary

Issues Involved:
1. FCCB and debenture issue expenses under Section 35D for the assessment years 2007-08 and 2008-09.
2. Expenditure on the issue of qualified institutional buyers (QIB) for the assessment year 2008-09.
3. Editorial content and brand right expenditure for the assessment year 2009-10.

Issue-Wise Detailed Analysis:

1. FCCB and Debenture Issue Expenses Under Section 35D for the Assessment Years 2007-08 and 2008-09:

The Revenue's appeals for these years revolved around the allowance of expenditure on FCCB and debenture issues under Section 35D. The Commissioner of Income-tax (Appeals) had allowed these expenses, considering them as public issue expenditures. The Assessing Officer had disallowed these expenses, arguing that they constituted capital expenditure. However, it was noted that the Department did not appeal against a similar allowance in the assessment year 2006-07. The Income-tax Appellate Tribunal (ITAT) held that the Department cannot contest the same issues in subsequent years if they accepted the order in an earlier year. The Tribunal upheld the Commissioner of Income-tax (Appeals)'s decision, allowing the expenses under Section 35D.

2. Expenditure on the Issue of Qualified Institutional Buyers (QIB) for the Assessment Year 2008-09:

The Assessing Officer disallowed the expenditure on the issue of QIB, arguing it was not a public issue. However, the Commissioner of Income-tax (Appeals) allowed the expenditure, stating that QIBs constitute 'public' and thus the subscription amounts to public subscription. The Commissioner also noted that the funds raised were utilized for the extension, modernization, and working capital requirements of the appellant's business, making the expenditure eligible for deduction under Sections 35D and 37. The Tribunal upheld this view, confirming that QIB expenditure could be treated as revenue expenditure and eligible for deduction under Section 35D.

3. Editorial Content and Brand Right Expenditure for the Assessment Year 2009-10:

The issue involved the allowance of expenditure on editorial content and brand rights as revenue expenditure. The Assessing Officer disallowed the expenditure, considering it capital in nature. However, the Commissioner of Income-tax (Appeals) allowed the expenditure, treating it as deferred revenue expenditure. The Commissioner noted that the expenditure was recognized as deferred revenue expenditure and written off over a period of 10 years. The Tribunal upheld the Commissioner of Income-tax (Appeals)'s decision, noting that the Department had not contested a similar allowance in the assessment year 2006-07. The Tribunal concluded that the Department could not agitate the same issues in subsequent years if they accepted the order in an earlier year.

Conclusion:

The Tribunal dismissed the Revenue's appeals for the assessment years 2007-08, 2008-09, and 2009-10, upholding the Commissioner of Income-tax (Appeals)'s decisions on all the issues involved. The order was pronounced in the open court on January 30, 2015.