1988 (7) TMI 124 - AT - Income Tax

Summary

Issues Involved:
1. Allowance of shifting expenses from Madurai to Bangalore amounting to Rs. 2,36,353.

Detailed Analysis:

1. Allowance of Shifting Expenses from Madurai to Bangalore Amounting to Rs. 2,36,353

Background and Initial Disallowance:
The assessee incurred expenses of Rs. 2,36,353 for shifting its administrative office from Madurai to Bangalore and claimed it as a deduction on the grounds that it did not create any capital asset but improved administrative efficiency. The Income-tax Officer (ITO) disallowed the expenditure, categorizing it as capital in nature, citing substantial and lasting advantages to the business, referencing the Supreme Court decision in Sitalpur Sugar Works Ltd. v. CIT, where similar expenses were deemed capital.

Commissioner (Appeals) Decision:
The Commissioner (Appeals) accepted the assessee's contention that the shifting did not create any enduring advantage, noting that the offices were in leased buildings and the expenses were for packing and transporting office materials. The Commissioner (Appeals) concluded that the advantage was temporary and revenue in nature, thereby deleting the disallowance made by the ITO.

Departmental Representative's Argument:
The departmental representative reiterated the Revenue's stance, emphasizing that the expenditure resulted in an enduring advantage to the business. The representative cited various cases to support the argument that such shifting expenses are capital in nature.

Tribunal's Majority Decision:
The Tribunal majority held that the expenditure was capital in nature. It was noted that the expenses were incurred in the context of a merger of three companies, leading to substantial business expansion. The shifting was seen as creating a permanent establishment in Bangalore, resulting in enduring benefits for the business, thus aligning with the principles laid out in British Insulated and Helsby Cables Ltd. v. Atherton.

Dissenting Opinion by Judicial Member:
The Judicial Member disagreed, arguing that the expenditure was for facilitating business operations and improving efficiency, not creating a capital asset. Citing the Supreme Court's decision in Empire Jute Co. Ltd. v. CIT, it was emphasized that the nature of the advantage in a commercial sense should be considered. The Judicial Member concluded that the expenditure was revenue in nature, as it facilitated trading operations without affecting the fixed capital.

Third Member's Decision:
The Third Member sided with the Judicial Member, emphasizing that the expenditure was for shifting files, furniture, and other office equipment, not creating a new capital asset. The Third Member referenced the Calcutta High Court decision in Karanpura Development Co. Ltd., which allowed shifting expenses as revenue expenditure. It was concluded that the expenditure was for more efficient management and was revenue in nature.

Final Decision:
The Tribunal, following the Third Member's decision, concluded that the expenditure of Rs. 2,36,353 incurred for shifting the administrative office from Madurai to Bangalore was revenue in nature and allowable as a deduction in the computation of business income.

Conclusion:
The Tribunal's majority initially deemed the expenditure capital in nature, but the final decision, influenced by the Third Member, recognized the expenditure as revenue, emphasizing the purpose of facilitating business operations and improving efficiency, rather than creating a new capital asset.