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TMI Blog2022 (5) TMI 934X X X X Extracts X X X X X X X X Extracts X X X X ..... atter for adjudication, it is essential to reproduce grounds defied by the appellant as under; "1. In the facts and circumstance of the case the Assessing officer erred in considering the expenditure or Rs. 14,51,649/- incurred by the appellant company on implementation of MPLS/VPN and lease line connectivity as deferred revenue expenditure to be written off over a period of three years and the Commissioner of Income Tax (Appeals) erred in holding that the appellant company by incurring the said expenditure of Rs. 14,51,649/- has acquired and intangible assets in the form of right to use to the connectivity and hence the said asset is eligible for depreciation @ he rate of 25% despite the fact that the said expenditure has not brought into existence any asset/advantage of enduring nature. 2. In the facts and circumstance of the case the Commissioner of Income Tax (Appeals) was unjustified in not directing the assessing officer to allow to the appellant company the entire expenditure of Rs. 14,51,649/- incurred by it during the year on implementation of MPLS/VPN and lease line connectivity either u/s. 28(1) or u/s. 37(1) of I.T. Act as the said revenue expenditure has not brough ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ourse of first appellate proceedings, however the Ld. CIT(A), perusing the agreement entered by the appellant with that of "M/s. Tulip Telecom Limited," and having regards to "right to connectivity" for a period over three years, concluded the said transaction as acquisition of an intangible asset, accordingly, held as capital assets and allowed depreciation u/s. 32 of the Act in the class/block of intangible assets @25%p.a. Since it is used for less than 180 days for the year under consideration, proportionate depreciation @50% of allowable depreciation is resultantly allowed. 4.4 Ld. CIT(A), in appeals before him, overturned all other disallowance/additions carried out by Ld. AO except differing with the views on disallowance of expenditure incurred in relation to MPLS/VPN lease line connectivity and holding it to be of capital in nature. 4.5 Aggrieved with the order of tax authorities below, the appellant assessee is before us with the grounds of appeal assailed at foregoing para 2 herein above. 5. During the course of hearing, the learned counsel for the assessee [for short "AR"] took us through the relevant facts of the case vis-à-vis written submissions made before ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ical party.] (Emphasis Supplied) 7.2. The bare reading of the provision brings out the following attributes, (1) expenditure should not be covered under any heads in section 30 to 36 (2) should not be a capital expenditure (3) should not be a personal expenditure (4) should be incurred for the purpose business or in the course of business (5) should not be disallowed under sub-section 2 of section 37 (6) The expenditure should not be any illegal purpose or violative of any law of the land. The precise objective of Section 37(1) is to allow a claim for any business expenditure incurred by the assessee which is not specifically covered under any of section 30 to 36. Thus, lex lata serves as residuary permitting to claim any expenditure incurred subject to conditions laid therein. Nisi, the expenditure qualifies any of negative test, or disqualifies any of the positive test laid therein, such expenditure shall be extra-territorial for the claim u/s. 37(1). 7.3 In the light of aforestated discussion, in the instant case, the expenditure incurred by the assessee, if qualifies all positive test and distants from negative test, thus cadit quaestio the nature of expenditure. 8. In nut ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ure, even if incurred for obtaining advantage of enduring benefit, may, none the less, be on revenue account and the test of enduring benefit may break down. It is not every advantage of enduring nature acquired by an assessee that brings the case within the principle laid down in this test, what is material to consider is the nature of the advantage in a commercial sense and it is only where the advantage is in the capital field that the expenditure would be disallowable on an application of this test, per contra, if the advantage consists merely in facilitating the assessee's trading operations or enabling the management and conduct of the assessee's business to be carried on more efficiently or more profitably while leaving the fixed capital untouched, the expenditure would be on revenue account, even though the advantage may endure for an indefinite future. The test of enduring benefit is, therefore, not a certain or conclusive test and it cannot be applied blindly and mechanically without regard to the particular facts and circumstances of a given case." (Emphasis Supplied) 8.4 The Hon'ble Court also referred to the following observations made in "Hallstorm' ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction 37(1), de-facto it qualifies for deduction, however the Ld. AO disallowed the portion of such expenditure not pertaining to the previous year but for unexpired period of benefit. It is apt to quote here that, in a similar facts and circumstance, the Hon'ble High Court of Delhi in the case of "CIT Vs Saw pipes Limited" reported at 300 ITR 35, the assessee had paid about Rs. 52 lac for laying of service line to Maharashtra State Electricity Board (MSEB), wherein the Lordships have held that the expenditure incurred by the assessee was a revenue expenditure in the absence of acquisition of any asset of capital, irrespective of the period of enjoyment. And as regards the relevance of accounting method followed by the assessee, it is observed that the treatment given by the assessee to the impugned expenditure as revenue expenditure cannot be considered as different from the one followed for the purpose of computing the total income under the IT Act. In any case, as held by the Hon'ble Supreme Court, in the case of "Kedarnath Jute Manufacturing Co. Ltd. Vs CIT" reported in 82 ITR 363 (SC), the allowability of a particular deduction depends on the provisions of law relating ..... X X X X Extracts X X X X X X X X Extracts X X X X
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