2021 (1) TMI 15 - AT - Income Tax

Nature of expenditure - expenses towards fees to HUDA - revenue or capital expenditure - HELD THAT - It s not the case of the Revenue that the one-time payment made to HUDA would in any way increase the value of the land, but on the other hand it is only for the purpose of improvements effected on the land. CIT(A) also found that the fee paid to HUDA is to secure permission to lease a part of the area for a food court, a pharmacy and parking area, which clearly indicates that the government s permission is required as the hospital is on a leasehold land and the assessee does not have the right to alienate, which is the ultimate test for ownership. CIT(A) further found that this expenditure is directly related to the day-to-day running of the business of the assessee in connection with the running of the hospital because the patients and doctors as well as the paramedical and administrative staff from the vertex around which the activities/business of the hospital operates. In Arvind Mills Ltd 1992 (7) TMI 2 - SUPREME COURT as rightly culled out by the Ld. CIT(A), in deciding whether an expenditure is a capital are Revenue expenditure, the question of voluntary and/or involuntary payment becomes immaterial and it is only the nature of expenditure that determines the issue, and in such case the owner got the advantage of betterment of land in question and there was no manner of doubt that the valuation of the land had increased because of the improvements effected on the land, but such payments had no direct nexus with the day-to-day running of the business. Insofar as the case on hand are concerned, there is no dispute as to the facts recorded by the Ld. CIT(A) that it is only to lease out a part of the area in which the hospital is run, for running a food court, a pharmacy and parking area the fees paid and such payment is directly related to the day-to-day running of the business of hospital by the assessee. Inasmuch as the assessee is not the owner of the land, the question of assessee getting the benefit of enhancement of value of the property does not arise - We, therefore, uphold the findings of the Ld. CIT(A) and dismiss the grounds of appeal of the Revenue.

Summary

Issues:
1. Classification of expenses towards fees to HUDA as Revenue or capital expenditure.

Analysis:
The appeal challenged the order passed by the Commissioner of Income Tax (Appeals) regarding the classification of expenses towards fees to HUDA as Revenue or capital expenditure for the assessment year 2012-13. The Revenue contended that the expenses were one-time and provided enduring benefits, thus should be classified as capital expenditure. The assessee, a private limited company managing medical facilities, argued that the expenses were Revenue in nature. The Assessing Officer treated the amount as capital expenditure, bringing it to tax after allowing for depreciation.

Upon appeal, the Commissioner analyzed the legal precedents and found that the payment made by the assessee to HUDA should be considered Revenue expenditure. The Revenue argued that the enduring benefits of the payment should classify it as capital expenditure, while the assessee maintained that the decision in Empire Jute Company Limited case was applicable, supporting the Revenue's classification as Revenue expenditure.

The Tribunal reviewed the submissions and facts, noting that the payment to HUDA was for obtaining permission to lease a part of the property for operational purposes related to the hospital's day-to-day business. It distinguished this case from Arvind Mills Ltd, emphasizing that the payment did not lead to an increase in property value but was essential for the hospital's operations. The Tribunal agreed with the Commissioner's interpretation of the law and upheld the decision that the expenses were Revenue in nature, dismissing the Revenue's appeal.

In conclusion, the Tribunal found no legal infirmity in the Commissioner's order and upheld the classification of expenses towards fees to HUDA as Revenue expenditure. The appeal of the Revenue was dismissed, affirming the decision of the Commissioner.