1999 (11) TMI 111 - AT - Income Tax

Summary

Issues:
Interpretation of license fee payment as revenue expenditure or capital expenditure.

Analysis:
In this case, the Department challenged the decision of the CIT(A) regarding the treatment of license fee paid to M/s Nirmal Towers as a revenue expenditure. The Department argued that the absence of copies of agreements hindered verification, and the enduring benefit to the assessee indicated a capital nature of the expenditure. On the other hand, the assessee contended that full facts were provided to the AO, emphasizing that the payment was necessary for earning income and had been consistently allowed as a deduction in the past. The CIT(A) had ruled in favor of the assessee, considering the license fee as a revenue expenditure.

The AO initially assessed the income from Nirmal Flat under the head "income from house property" and treated the outgoing license fee as a capital expenditure. However, the CIT(A) disagreed, stating that the license fee was a revenue expenditure essential for earning income. The CIT(A) highlighted that the payment entitled the appellant to use the space for a period, making it a revenue expense. The Department contested this finding, citing the absence of agreements and the enduring benefit to the assessee.

Upon review, the Tribunal upheld the CIT(A)'s decision, emphasizing the Department's failure to challenge the income's assessment under 'Other sources' and inability to demonstrate the enduring benefit of the license fee payment. The Tribunal noted the allowance of the deduction in previous assessments, indicating a consistent practice. While acknowledging the non-applicability of res judicata in income tax proceedings, the Tribunal affirmed the CIT(A)'s order, dismissing the appeal.

In conclusion, the Tribunal upheld the CIT(A)'s decision, ruling that the license fee paid to M/s Nirmal Towers was a revenue expenditure, essential for earning income, and had been consistently allowed as a deduction in past assessments. The Department's arguments regarding the absence of agreements and enduring benefit were deemed insufficient to challenge the revenue nature of the expenditure.