2014 (7) TMI 1280 - AT - Income Tax

Disallowance of expenditure incurred by the assessee towards making of enrollment cards under Rashtriya Swasthya Bima Yojana (RSBY Scheme) - deferred revenue expenditure - assessee will get enduring benefit out of this investment for years together the AO allowed only 1/10th of the expenditure by amortising the expenses and disallowed the balance - Held that - As against incurring of approximately ₹ 77/- towards cost of each smart card the assessee received service charge of ₹ 97/- per smart card from the insurer. Further, the finding given by the Ld.CIT(A) that the issue of smart card per se is completely independent line of business for the assessee company from the main business of settling the beneficiaries claimed on behalf of the insurance companies under the RSBY scheme could not be controverted by the Ld. Departmental Representative. Departmental Representative also could not controvert the finding given by the CIT(A) that the amount received during the year has been shown as income and the assessee has claimed the corresponding expenditure incurred on the printing and issue of smart cards. No infirmity in detailed reasoning given by the CIT(A). Merely because the amount appears to be huge cannot be a ground to disallow the same on the ground of enduring benefit to the assessee when the corresponding revenue earned has been considered as income of the impugned year. - Decided against revenue

Summary

Issues:
Assessment of enrolment expenses as revenue expenditure for a company engaged in Third Party Administrator (TPA) business for Indian Health Insurance sector.

Analysis:
1. Assessment of Enrolment Expenses: The primary issue in this case revolved around the assessment of enrolment expenses incurred by the assessee company for the preparation of smart cards under the Rashtriya Swastha Bima Yojana (RSBY) scheme. The Assessing Officer (AO) disallowed a significant portion of the expenses, allowing only 1/10th of the total amount as expenditure for the year, citing enduring benefit to the assessee. However, the Ld.CIT(A) overturned this decision, emphasizing that the smart card printing was an independent line of business for the company, distinct from its core activities of settling insurance claims. The Ld.CIT(A) highlighted the contractual obligations of the company, the ownership of the smart cards vested with the Government of India, and the absence of enduring benefits accruing to the company. The Ld.CIT(A) concluded that the company followed the correct mercantile system of accounting, matching income and expenditure appropriately. The Tribunal upheld the Ld.CIT(A)'s decision, noting that the revenue earned from the smart card activities was considered as income for the year, and there was no justification to disallow the expenses based on the concept of enduring benefit. The Tribunal dismissed the Revenue's appeal, affirming the Ld.CIT(A)'s order.

2. Ownership and Renewal of Smart Cards: Another crucial aspect addressed in the judgment was the ownership and renewal provisions related to the smart cards issued under the RSBY scheme. The AO had raised concerns regarding the revalidation and potential enduring benefits arising from the smart card printing expenses. However, both the Ld.CIT(A) and the Tribunal highlighted that the ownership of the smart cards rested with the Government of India, and the company's role was limited to administrative functions on behalf of the insurance companies. The Ld.CIT(A) emphasized that any future contracts or re-enrolments would involve new beneficiaries, indicating a lack of enduring benefits from the initial expenses incurred. The Tribunal concurred with this analysis, underscoring the absence of enduring benefits accruing to the company and supporting the Ld.CIT(A)'s decision to allow the expenses as revenue expenditure for the year under consideration.

In conclusion, the judgment centered on the treatment of enrolment expenses for smart card printing under the RSBY scheme, emphasizing the absence of enduring benefits to the company and the independent nature of the smart card business from the core operations of the company. The decision provided clarity on the correct accounting treatment of such expenses and upheld the Ld.CIT(A)'s ruling in favor of the assessee, dismissing the Revenue's appeal.