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TMI Blog2003 (9) TMI 300X X X X Extracts X X X X X X X X Extracts X X X X ..... ice its existing client base by providing the desired connectivity for communication through the satellite. Therefore, the assessee in the relevant previous year replaced certain parts of the VSATs sold by it. Such replacement was done free of cost and the cost of expenditure amounted to Rs. 1,45,75,538 which had been treated as deferred revenue expenditure amortized over a period of 5 years in the books of account. In para 10 of the notes to the accounts, it was stated by the assessee as under: "In order to optimize its existing capacity on the transponder, the company had during the year replaced certain equipments in some of the VSATs that were sold to customers and installed in the prior years. The replacement was done free of cost an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the books of accounts were not relevant and what was relevant is the nature of the benefit derived by the assessee. (iv) The nature of the benefit derived by the assessee in the form of saving of revenue expenditure inasmuch as by incurring such expenditure the availability of bandwidth in the transponder increased substantially. In support of the above submissions, the assessee relied on the following judgments: (a) Kedarnath Jute Mfg. Co. Ltd. vs. CIT (1971) 82 ITR 363 (SC) (b) Empire Jute Co. Ltd. vs. CIT (1980) 17 CTR (SC) 113 : (1980) 124 ITR 1 (SC) (c) CIT vs. ACC Ltd. 172 ITR 267 (1988) 70 CTR (SC) 28 : (1988) 172 ITR 257 (SC) (d) CIT vs.MadrasAuto Services (P) Ltd. (1998) 148 CTR (SC) 398 : (1998) 233 ITR 468 (SC) Howeve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hrough the satellite. What is being provided by the appellant is a communication service which is not manufactured or produced or traded, but is obtained by the use of satellites. The concepts of capital asset or advantage of enduring benefit are therefore, required to be understood in the context of this modern business process. The Hon ble Supreme Court has recognized, in the case of Alembic Chemical Works Co. Ltd. vs. CIT (1989) 77 CTR (SC) 1 : (1989) 177 ITR 377 (SC), that what is capital expenditure and what is revenue are not eternal verieties but must needs be flexible so as to respond to the changing economic realities of business. The expression "asset or advantage of an enduring nature" theHon ble Courthas stated, was evolved ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... emove the restriction in the conduct of business leaving the fixed capital untouched while in the present case, the expenditure was not incurred to remove the restriction but was incurred to augment the profit making apparatus by introducing a technical change. Further, the expenditure incurred by the assessee was enduring one. Regarding other judgements, in the case of ACC Ltd., and in the case of Madras Auto Services, it was observed by him that the advantage obtained was in the form of savings in future revenue expenditure while in the present case, the assessee had not made any savings by way of reduced rent payable for hiring transponder space or by surrendering the saved bandwidth. So according to him, there was no financial savings t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the same at the required frequency. So, all the businessmen in the field of communication have to take on rent the bandwidth from the owner of the satellite. The size of the bandwidth would depend on the volume of the business carried on by businessmen. VSAT is an equipment, which receives the communication routed through the transponder. Such VSATs are sold by the assessee to its customers. The bandwidth taken by the assessee on rent had been exhausted and therefore, the assessee could expand its business by taking extra bandwidth on rent. However, on account of change in the technology, more VSATs could function with same bandwidth if a new part was inserted in the place of old part in the existing VSATs sold by the assessee. The assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er increased since the parts purchased were replaced free of cost. The moment the parts were replaced, the ownership in it vested in the customers. Therefore, the benefit accrued to the assessee was in the form of availability of bandwidth in the transponder. The payment of rent for availing the bandwidth has been accepted by the AO as revenue expenditure. Hence, the benefit accrued to the assessee was only in the revenue field. Accordingly, it is held that the expenditure incurred by the assessee was a revenue expenditure and has to be allowed. 8. It is also mentioned that entries in the books of account are not relevant for claiming deduction. What is relevant is the nature of expenditure. Reference can be made to the judgment of Suprem ..... X X X X Extracts X X X X X X X X Extracts X X X X
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