2008 (8) TMI 436 - AT - Income Tax

Summary

Issues involved:
The judgment involves the issue of whether the expenditure incurred for the construction of a hockey stadium is allowable as a revenue expenditure u/s 37 of the Income Tax Act, and whether it was incurred for the purpose of business.

Details of Judgment:

Issue 1: Allowability of Expenditure
The Revenue appealed against the order of the CIT(A) directing the AO to allow the claim of expenditure of Rs. 24,00,000 incurred in the construction of a hockey stadium. The AO initially made the addition without specific reasons, but later it was revealed that the addition was made based on directions u/s 144A of the IT Act. The Addl. CIT disallowed the expenditure, stating that there was no condition for constructing the stadium before contract allotment. However, the CIT(A) allowed the expenditure considering it beneficial for generating goodwill, citing precedents like CIT vs. Madras Refineries Ltd. The Tribunal held that the expenditure was not capital expenditure as the stadium was on Government land and not owned by the assessee, and it was for the promotion of business, thus allowable u/s 37.

Issue 2: Purpose of Expenditure
The Revenue argued that the expenditure was capital in nature and not incurred for business purposes. The assessee contended that the construction of the stadium would generate goodwill for its various businesses, citing legal precedents like Sri Venkata Satyanarayna Rice Mill Contractors Co. vs. CIT and Cholan Roadways Corporation Ltd. vs. CIT. The Tribunal agreed with the assessee, stating that the expenditure was for promoting general public welfare and creating goodwill for the business, hence allowable u/s 37.

Precedents Considered:
The Tribunal referred to legal precedents like Sri Venkata Satyanarayna Rice Mill Contractors Co. vs. CIT and Cholan Roadways Corporation Ltd. vs. CIT, where contributions for public causes were held allowable. It also cited the case of Madras Refineries Ltd., where expenditure for goodwill was allowed. Following these precedents, the Tribunal concluded that the expenditure on the hockey stadium was for the promotion of business and hence allowable.

Conclusion:
The Tribunal dismissed the Revenue's appeal, upholding the order of the CIT(A) to allow the expenditure incurred for the construction of the hockey stadium as a revenue expenditure u/s 37 of the Income Tax Act, considering it beneficial for generating goodwill and promoting the assessee's business.