2008 (1) TMI 385 - HC - Income Tax

Capital versus Revenue Expenditure - The Commissioner of Income-tax on perusal of the records of the assessee found that the claim of Rs. 5, 00, 000 being paid to SEBI during the assessment year as authorisation fee had wrongly been allowed as revenue expenditure. Hence he disallowed the sum of Rs. 5, 00, 000 deposited by the assessee as authorisation fee to SEBI was capital expenditure. This payment was made in order to meet the requirements of the Securities of Exchange Board of India Act 1992. According to the appellate authority payment was made only once. Hence the expenditure incurred by the assessee rendered the assessee with a benefit of enduring nature and therefore treated it as capital expenditure. Tribunal held that that the amount is revenue in nature and allowed the deduction HC held that ff the Revenue had been treating the amount of Rs. 5, 00, 000 deposited by the similarly situated assessees with SEBI as revenue expenditure then there is no reason why a different treatment should be meted out to the present assessee allowed as revenue expenditure.

Summary

Issues:
Interpretation of payment to SEBI as revenue or capital expenditure.

Analysis:
The case involved a dispute regarding the treatment of a payment of Rs. 5,00,000 made by the assessee to SEBI as an authorization fee. The Commissioner of Income-tax contended that the payment should be considered a capital expenditure, while the Income-tax Appellate Tribunal ruled in favor of treating it as a revenue expenditure. The Tribunal relied on the judgment of the Supreme Court in Bikaner Gypsums Ltd. v. CIT [1991] 187 ITR 39 to support its decision. The Revenue appealed the Tribunal's decision under section 260A of the Income-tax Act, 1961.

The respondent, a banking company, filed a return of income for the assessment year 1991-92, showing an income of Rs. 10,01,37,310. The Assessing Officer made certain additions during the assessment, leading to scrutiny by the Commissioner of Income-tax. The Commissioner initiated proceedings under section 263 of the Act, arguing that the Rs. 5,00,000 payment to SEBI should be treated as a capital expenditure. The Commissioner believed that the payment conferred an enduring benefit to the assessee, making it a capital expense.

The Tribunal, after evaluating the facts and law, disagreed with the Commissioner's assessment and deemed the payment as a revenue expenditure. The Tribunal's decision was based on the interpretation that the payment was not for a recurring benefit and should be treated as a revenue expense. The High Court, upon hearing arguments from both parties, found no merit in the Revenue's appeal. The Court noted that if other banking companies treated similar payments as revenue expenditure, there was no justification for treating the assessee differently. Consequently, the appeal was dismissed without directly addressing the substantial question of law raised by the Revenue.

In conclusion, the High Court upheld the Tribunal's decision to treat the payment to SEBI as a revenue expenditure, emphasizing consistency in treatment among similarly situated assessees. The Court's ruling highlighted the importance of uniformity in tax treatment for comparable transactions to prevent discrimination.