2015 (9) TMI 1712 - HC - Income Tax

Expenditure incurred on account of non-compete fee paid to sellers of bottling business - revenue or capital expenditure - depreciation on the non-compete fee expenditure - Whether expenditure incurred towards ice boxes and dealer sign boards provided to hawkers/ dealers, carrying the brand name of the appellant, was capital in nature? - HELD THAT - Appeal admitted for substantial question of law. Liberty is granted to the parties to file all the relevant documents which form part of the record of the case before the Assessing Officer, the CIT (A) and ITAT.

Summary

Issues involved:
1. Classification of expenditure on non-compete fee as revenue or capital.
2. Allowance of depreciation on non-compete fee expenditure.
3. Classification of expenditure on ice boxes and dealer sign boards as revenue or capital.

Analysis:
1. The primary issue before the court was the classification of the expenditure incurred on non-compete fee paid to sellers of bottling business. The court framed the question of law regarding whether the Tribunal erred in holding this expenditure as capital in nature instead of allowing it as a revenue deduction. The appellant argued that the expenditure should be treated as revenue, while the respondent contended that it should be considered capital expenditure.

2. Additionally, the court considered the question of allowing depreciation on the non-compete fee expenditure, which was held to be in the nature of capital expenditure. This issue was framed without prejudice and in the alternate, seeking a determination on whether depreciation should be allowed on this expenditure despite its capital nature. The court was tasked with analyzing the facts and circumstances to decide on the applicability of depreciation in this scenario.

3. Another issue raised was the classification of expenditure towards ice boxes and dealer sign boards provided to hawkers/dealers as capital in nature. The Tribunal had previously held this expenditure to be capital, which led to a dispute on whether it should be considered as revenue expenditure instead. The court was required to assess the nature of these expenses and determine whether they qualified for revenue deduction based on the facts and circumstances of the case.

4. In granting liberty to the parties to file all relevant documents forming part of the case record before the Assessing Officer, the CIT (A), and ITAT, the court ensured that all necessary information would be available for a thorough examination of the issues at hand. This step aimed to facilitate a comprehensive review of the case and enable a well-informed decision based on the complete set of documents and evidence.

5. The judgment highlighted the importance of properly categorizing expenditures as revenue or capital, as it has significant implications for taxation and financial reporting. By addressing each issue in detail and considering the arguments presented by both parties, the court aimed to provide a reasoned decision that would clarify the treatment of the disputed expenditures in accordance with the relevant legal principles and precedents.