2008 (4) TMI 219 - HC - Income Tax

Claim for deduction u/s 80-I denied as assessee not fulfilled conditions of Sec. 80-I regarding no. of workers employed etc. ITAT uphold the finding of CIT of reversing the order of AO, holding that number of persons employed were more than 20 & in the earlier assessment year, on the same facts, the case was decided in favour of assessee - Revenue couldn t controvert the above finding revenue appeal dismissed held that expenses incurred on Glow Sign Boards were of revenue nature

Issues Involved:
1. Nature of expenses on Publicity and Advertisement.
2. Nature of expenses on Glow Sign Boards.
3. Eligibility for deduction under Section 80 I of the Income Tax Act, 1961.

Detailed Analysis:

1. Nature of Expenses on Publicity and Advertisement:
In ITR No. 2 of 2000, the substantial question of law referred was whether the Tribunal was justified in confirming the orders of CIT (A) that expenses of Rs. 1,86,406/- and Rs. 1,79,833/- debited to Publicity and Advertisement account were of revenue nature. The Assessing Officer had treated these expenses as capital in nature, relying on the decision of the Bombay High Court in Commissioner of Income Tax, Bombay City I v. M/s Patel International Film Ltd., 102 ITR 219. However, the CIT (A) allowed these expenses as revenue expenses, supported by the Himachal Pradesh High Court decision in Mohan Meakin Breweries Ltd. v. Commissioner of Income Tax, 118 ITR 101, which stated that advertisement expenses cannot be treated as capital expenditure. The Tribunal upheld the CIT (A)'s decision. The High Court agreed with the Tribunal, emphasizing that the expenditure on advertisement and publicity is not for acquiring an asset of enduring nature but for facilitating business operations, thus qualifying as revenue expenditure under Section 37 (1) of the Act.

2. Nature of Expenses on Glow Sign Boards:
In the ten appeals filed by the Revenue, the substantial question of law was whether the ITAT was right in confirming the order of CIT (A) that the expenses incurred on Glow Sign Boards were of revenue nature. The Assessing Officer had disallowed these expenses, treating them as capital expenditure. The CIT (A) and the Tribunal, however, treated these expenses as revenue in nature. The High Court upheld this view, stating that the expenditure on Glow Sign Boards does not bring into existence an asset or advantage for the enduring benefit of the business. Glow Sign Boards have a short life and require frequent replacement, indicating that the expenditure is not of a permanent nature. Therefore, the expenditure was rightly treated as revenue in nature.

3. Eligibility for Deduction under Section 80 I of the Income Tax Act, 1961:
In three appeals (ITAs No. 200 of 2005, 159, and 160 of 2006), the additional substantial question of law was whether the ITAT was correct in law in allowing the assessee's claim for deduction under Section 80 I of the Income Tax Act, 1961, when conditions laid down for such deduction were not fulfilled. The Assessing Officer had disallowed the claim on the grounds that the assessee did not fulfill the conditions regarding the number of workers employed and the fact that finished goods were being manufactured by outside parties. The CIT (A) reversed this decision, confirming that the number of workers employed was more than 20 and that the same facts had been decided in favor of the assessee in earlier assessment years. The Tribunal affirmed this finding. The High Court found no illegality or infirmity in the Tribunal's order and upheld the allowance of the deduction under Section 80 I.

Conclusion:
All the substantial questions of law raised by the Revenue were answered in the affirmative, i.e., against the Revenue and in favor of the assessee. Consequently, Income Tax Reference No. 2 of 2000 was answered against the Revenue, and Income Tax Appeals No. 9 of 2002, 79, 200, 201 of 2005, 159, 160 of 2006, 452, 453, 527, and 528 of 2007 were dismissed.

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