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TMI Blog2012 (9) TMI 524X X X X Extracts X X X X X X X X Extracts X X X X ..... ovident funds, and allowed only such portions as were actually paid - against revenue. - ITA Nos.95 & 100/2011 - - - Dated:- 14-9-2012 - MR. JUSTICE S. RAVINDRA BHAT, MR. JUSTICE R.V. EASWAR, JJ. For Appellant: Mr. Sanjeev Sabharwal, Sr. Standing Counsel. For Respondent: Mr. Ajay Vohra with Ms. Kavita Jha and Mr. Somnath Shukla, Advocates. MR. JUSTICE S.RAVINDRA BHAT The present common judgment arises out of an order of the Income Tax Appellate Tribunal (ITAT) dated 04.09.2009 in ITA 2158/Del/2003 and ITA 827/Del/2006. These two pertain to the Assessment Years 1999-00 and 2000-01. 2. The following questions of law arise for consideration: i. Did the Tribunal err in law in upholding the deduction towards provision for salary, Provident Fund etc not actually paid during the assessment year under consideration? ii. Did the Tribunal err in holding that the sum of Rs. 43,01,632/-, paid by the assessee as its share of the joint venture to insurance business, towards business capital and drafting expenses was deductible in its hands, as expenditure? iii. Did the Tribunal fall into error in holding that the sum of Rs. 5,76,975/-, paid to IMRB for market ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r capital expenditure. The Delhi High Court itself had taken me view mat me expenditure on an abandoned project would be capital expenditure in State Trading Corporation of India Ltd., Vs. CIT (1974) 94 ITR 496 (Delhi). Subsequently the Delhi High Court in Triveni Engineering Works Ltd. Vs. CIT (1998) 232 ITR 639 232 ITR (Del) has held that an expenditure in the nature of capital expenditure cannot be treated as revenue expenditure only because the purpose for which the expenses was incurred could not be fulfilled. It was so held by the Delhi High Court that where the issue related to me claim for expenditure for getting a project report for a project which did not take off, it is the nature of the expenditure that is relevant and not whether the expenditure ultimately resulted in enduring benefit as long as it was an expenditure intended for acquiring such benefit. XXXXXX XXXXXX XXXXXX 5.3 In the Written arguments, the Ld. Counsel for the appellant strongly objected to the treatment of expenditure as capital expenditure, it was stated that t6he appellant company has brand name Hindustan Times which is well known both nationally and internationally. It was stated that the com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lowance of Rs.38,01,632/- and Rs. 5,75,000/- is confirmed. XXXXXX XXXXXX XXXXXX 4. Similarly, in respect of the sum of Rs. 5,76,975/- towards market research report, it was held that: 20. The next point of appeal relates to disallowance of Rs.5,76,975/- paid to M/s. IMRB for conducting a market research on Life Insurance business in India. The appellant company has argued that H.T. is a activity company and is engaged in various activities such as printing and publishing of Newspaper, distributing and broadcasting T.V. Firms, video magazines, Insurance etc., The objects of the appellant company include undertaking of insurance business. The appellant has cited the Supreme Court in Setabganj Sugar Mills Ltd., Vs. CIT 41 ITR 272 wherein the Court held that in determining whether there was any inter-connection, any interlacing, any inter-dependence, any unity, embracing the ventures, and whether the different ventures were so interlaced and so dovetailed into each other as to make them into the same business. 21. The appellant company has based his contention on the argument resting on unity of control‟, that is to say that even though the business any involve a div ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd also relied upon the judgment of this Court in CIT v. Relaxo Footwears Limited 293 ITR 231. Similarly, so far as the liability to make payments towards arrears and liability arising out of the Provident Fund, ESI arrears etc were concerned, the Tribunal held that the liability accrued in the Assessment year under consideration since the award had been made in that year even though the mode and manner of payment was deferred; in other words, the liability accrued in the Assessment Year in question. The assessee had relied upon the decision of the Andhra Pradesh High Court in S. Subba Rao Co. v. Union of India 173 ITR 708. Following that and the Special Bench ruling of the Tribunal in Dy. CIT v. Glaxo Smith Kline Consumer Healthcare Ltd. ITD 107 343 (Chd), it was held that the entire amount of Rs. 60 lakhs could be allowed. 7. The Revenue, in the present appeal relies upon the decision of this Court in Triveni Engineering Works v. Commissioner of Income Tax 232 ITR 639, arguing that expenditure towards a proposed business, the purposes for which was never fulfilled, can never be allowed. It was submitted that an abortive capital expenditure did not in any manner radically diff ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at so far as the expenditure towards payment of fee for conducting market research and survey is concerned, the issue stands covered by the ruling of this Court in CIT v. Priya Village Roadshows Ltd. 332 ITR 594 and the judgment of the Punjab and Haryana High Court in CIT v. Vardhman Spinning and General Mills 176 Taxman 157 and judgments of the Gauhati High Court and the Andhra Pradesh High Courts. These amounts are clearly deductible as the feasibility study conducted by the assessee was for the same and existing business. 11. On the question of expenditure paid towards wage arrears, learned counsel emphasized that Section 43B cannot apply where statutory liability is incurred during the accounting year but payable on either due to operation of law or on account of arrangements not within the volition of the assessee. Relying on the ruling of the Andhra Pradesh high Court in S. Subba Rao (supra), it was argued that they attract Section 43B when not only the liability to pay tax is incurred in accounting year but when the amount also, in fact, is statutorily payable in the same year. Questions No. 1 and 2 12. These questions are taken up together, since the discussion of law ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iness. But the decision of this Court in Prithvi Insurance Co., (63 ITR 632.) shows that no decisive inference can be drawn from the fact that after the closure of one business, another may or may not conveniently be carried on.. Therefore, to be part of an existing business, the assessee has to satisfy that the business proposed, or undertaken involves common elements, such as unified administration and management, resource sharing, personnel sharing and common funding. If these are satisfied, the quest ends, and the business activity being looked into (to consider if it is new) would be deemed as part of the existing business. 13. In this case, the existing business of the assessee was in newspapers and publication. It examined the feasibility of starting life insurance business. There are no details as to whether that business could have involved the same personnel, or there were other commonalities, besides common funding. The commercial activities are different; the laws applicable are also different. An amendment to the law enabled foreign investment opportunity to the extent of 26% in any given domestic company (by an overseas company) in the insurance sector. This am ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d were not payable and their being shown as accrued liabilities had to be seen in the context of the fact that the employer assessee had to pay these arrears in three installments. Therefore, the bar under Section 43B was attracted. For the sake of convenience, that provision is set out below: 43B. CERTAIN DEDUCTIONSTO BE ONLY ON ACTUAL PAYMENT Notwithstanding anything contained in any other provision of this Act, a deduction otherwise allowable under this Act in respect of - (a) Any sum payable by the assessee by way of tax, duty, cess or fee, by whatever name called, under any law for the time being in force, (b) Any sum payable by the assessee as an employer by way of contribution to any provident fund or superannuation fund or gratuity fund or any other fund for the welfare of employees, (c) Any sum referred to in clause (ii) of sub-section (1) of section 36, (d) Any sum payable by the assessee as interest on any loan or borrowing from any public financial institution or a state financial corporation or a state industrial investment corporation, in accordance with the terms and conditions of the agreement governing such loan or borrowing. (e) Any sum payable by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed to in clause (c) or clause (d) of this section is allowed in computing the income referred to in section 28 of the previous year (being a previous year relevant to the assessment year commencing on the 1st day of April, 1988, or any earlier assessment year) in which the liability to pay such sum was incurred by the assessee, the assessee shall not be entitled to any deduction under this section in respect of such sum in computing the income of the previous year in which the sum is actually paid by him. Explanation 3A : For the removal of doubts, it is hereby declared that where a deduction in respect of any sum referred to in clause (e) of this section is allowed in computing the income referred to in section 28 of the previous year (being a previous year relevant to the assessment year commencing on the 1st day of April, 1996, or any earlier assessment year) in which the liability to pay such sum was incurred by the assessee, the assessee shall not be entitled to any deduction under this section in respect of such sum in computing the income of the previous year in which the sum is actually paid by him. Explanation 4 : For the purposes of this section, - (a) "Public finan ..... X X X X Extracts X X X X X X X X Extracts X X X X
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