2008 (8) TMI 346 - HC - Income Tax

Hiring of equipments - Capital Expenditure versus Revenue Expenditure The appellant-assessee has taken certain equipments on lease for which a sum of Rs. 10,00,000 is paid as deposit and it is also paying rentals payable to the owner of the equipments held that - It is no doubt true that the assessee has paid the deposit of Rs. 10,00,000 which has to be adjusted towards the rentals. When such being the case, we are of the opinion that the Commissioner of Income-tax (Appeals) was justified in reversing the findings of the Assessing Officer, but the Tribunal without considering the legal aspect and without any basis has wrongly come to the conclusion that the assessee has acquired the equipments. On facts, we notice that the assessee has not acquired any assets and only the rentals were paid by the assessee which has to be treated only as an expenditure and not to acquire the assets. In the result, we have to answer the question of law in favour of the assessee

Summary

Issues:
Interpretation of payment to Bangalore Cancer Research Foundation - Capital expenditure or revenue expenditure

Analysis:

Issue 1: Interpretation of payment to Bangalore Cancer Research Foundation

The case involved a dispute regarding the nature of a payment made by the assessee to the Bangalore Cancer Research Foundation. The appellant had taken certain equipment on lease, paying a deposit of Rs. 10,00,000 along with rentals. The Assessing Officer treated the deposit and rentals as capital expenditure, disallowing deductions under revenue expenditure. The Commissioner of Income-tax (Appeals) reversed this decision, considering the expenses as revenue in nature. However, the Income-tax Appellate Tribunal overturned the Commissioner's decision, asserting that the payment was for the purchase of equipment, not for its use.

The High Court, after reviewing the facts, concluded that since the assessee was a lessee and not the owner of the equipment, the expenses incurred, including the deposit and rentals, should be treated as revenue expenditure. The Court emphasized that the payment of Rs. 10,00,000 was a deposit to be adjusted against rentals and did not signify acquisition of assets. Therefore, the Tribunal's decision was deemed erroneous as it failed to consider the legal aspect, leading to an incorrect conclusion that the assessee acquired the equipment. Consequently, the High Court ruled in favor of the assessee, overturning the Tribunal's order and upholding the decision of the Commissioner of Income-tax (Appeals).

In summary, the High Court held that the payment made by the assessee to the Bangalore Cancer Research Foundation was for lease rentals and not for the purchase of equipment, thus qualifying as revenue expenditure rather than capital expenditure. The appeal was allowed, setting aside the Income-tax Appellate Tribunal's order and confirming the decision of the Commissioner of Income-tax (Appeals).