2009 (6) TMI 76 - HC - Income Tax

Capital Expenditure versus Revenue Expenditure Construction of hockey stadium amount of Rs. 24 paid for securing the contract - held that - The Tribunal also noted that the mere willingness expressed by the assessee to construct the hockey stadium in the District Collectorate for a value of Rs. 24 lakhs cannot be construed as a bribe to a person or the money was contributed for a private fund or for the benefit of any individual which could be regarded as a form of illegal gratification - Therefore, the claim made by the assessee that he volunteered for constructing the hockey stadium for generating goodwill and for promoting his business activities, especially where such construction of hockey stadium was for the welfare of the public which was not prohibited in law, has to be sustained expenditure in the nature of promotion of business allowed to be deducted

Summary

Issues:
1. Whether the expenditure incurred on the construction of a hockey stadium is capital expenditure or business expenditure.
2. Whether the construction of a hockey stadium for the public can be considered as business expenditure.

Analysis:
1. The case involved the question of whether the expenditure incurred on constructing a hockey stadium should be classified as capital expenditure or business expenditure. The appellant, a civil contractor, secured a contract for building a hockey stadium in the Collectorate complex. The Commissioner of Income-tax (Appeals) and the Appellate Tribunal, referring to a Supreme Court decision, concluded that the expenditure was in the regular course of the assessee's business and therefore should be considered as business expenditure, not capital expenditure. The Tribunal emphasized that the construction was not a form of illegal gratification but was done to generate goodwill and promote business activities. The construction was for the welfare of the public and did not contravene any law. The expenditure was deemed to be in the promotion of the assessee's business, making it allowable in law and classifying it as business expenditure.

2. The second issue raised was whether the construction of the hockey stadium for the public could be classified as business expenditure. The Tribunal found that the construction was part of the regular course of the assessee's business and was done for the welfare of the public without any illegal motives. Referring to previous decisions, the Tribunal held that contributions made towards public welfare funds were deductible and not against the law. Therefore, the expenditure incurred by the assessee for constructing the hockey stadium for the public was considered as a legitimate business expenditure and allowable under the law.

In conclusion, the High Court dismissed the appeal, ruling in favor of the assessee, stating that the expenditure incurred on the construction of the hockey stadium was in the regular course of business and for the welfare of the public, making it a legitimate business expenditure and not capital expenditure.