9911796707
TMI Blog2005 (2) TMI 452X X X X Extracts X X X X X X X X Extracts X X X X ..... may be briefly noticed. 2.1 The appeal filed by the assessee before the Tribunal involved several issues, one of which was whether the assessee was entitled to get deduction in computing the total income of the assessee. The payment of Rs. 70,00,000 and Rs. 1,50,000 on account of development fee and fee for operating on the floor to Calcutta Stock Exchange, the payment of admission fee of Rs. 6,00,000 and technology cost of Rs. 2,00,000 paid to O.T.C. Exchange of India and payment of non-adjustable deposit for membership subscription of Rs. 30,00,000 and deposit for Very Small Apperatus Terminal (VSAT) of Rs. 10,00,000 paid to National Exchange of India. When the matter was placed before the Division Bench, the Bench felt that the question should be considered and decided by a Special Bench for the following reasons recorded in the referral order:- "Reference under section 255(3) of the I.T. Act, 1961 by Kolkata Bench "C" to the President, Income Tax Appellate Tribunal for constituting a Special Bench. We, the Members of "C" Bench at Kolkata are of the view that the appeal of M/s. Peerless Securities Ltd., 3, Esplanade East, Kolkata, for assessment year 1996-97 in ITA No. 251 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s and come to a final decision on this issue. The statement of the case and the terms of reference are separately enclosed." 2.2 The Hon'ble President of the Tribunal was then pleased to constitute a Special Bench consisting of three members to decide the above-referred question set out in paragraph 1 hereto above. 3. Facts of the case The assessee's claim for deduction of Rs. 1,19,50,000 was rejected by the Assessing Officer in the assessment completed under section 143(3) of the Act on 15-3-1999 by stating and observing as under:- "The assessee-company is engaged in the business of share & stock brokerage. In the computation of income furnished alongwith the return of income, the assessee has claimed deduction of Rs. 1,19,50,000 under the head Deferred Revenue Expenditure shown in the Balance-sheet. The related details were furnished on behalf of the assessee, the perusal of which reveals that the following payments were made:- Calcutta Stock Exchange Association: Development Fee Rs. 70,00,000 Fees for operating on the floor Rs. 1,50,000 Rs. 71,50,000 OTC Exchange of India: Admission Fee Rs. 6,00,000 Techn ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... een treated as revenue expenditure & claimed in the return. The technology cost of Rs. 2 lakhs paid to OTCEI represents payment towards training imparted by the Institution to the employee of the assessee-company in the operation of the Institution & such training was necessary for the assessee-company in order to become familiar with the operation of OTCEI. Hence, the said technology cost has been treated as revenue expenditure. In connection with the aforementioned items included in deferred revenue expenditure, reliance was placed upon the decisions of the Madras High Court in the case of CIT v. Aquapump Industries 218 ITR 427 & of the Supreme Court in the case of Alembic Chemical Works Co. Ltd v. CIT 177 ITR 377. After having considered the submissions made on behalf of the assessee, my findings are as under:- (a) It is very important to point out here that this is the first year of the assessee's business & the assessee is engaged in the business of share trading & share-brokerage. The aforesaid expenditures have been incurred on account of fees for obtaining membership, subscription & rights of Calcutta Stock Exchange, OTC Exchange of India & National Stock Exchan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... p of Calcutta Stock Exchange (CSE) was approved by CSE in their committee meeting held on 6-7-1995 and the appellant admitted as corporate member subject to payment of certain fees which include, inter alia, development fee Rs. 70,00,000 and fees for operating on the floor Rs. 1,50,000 vide CSE's letter dated 11-7-1995 (copy enclosed). Thus the above two payments were made to become corporate member of CSE and carry on operation on the floor. These two payments have direct nexus to the nature of business carried on by the assessee. Hence, the same can be allowed under section 37(1). The ld. Assessing Officer considered that the aforesaid payments were made for initial outlay or for acquiring or bringing to the business and accordingly considered the expenditure as capital expenditure. He also considered that the membership of Stock Exchange is a capital asset. We would like to state that the benefit of enduring nature is not the sole or exclusive test to decide whether a particular expenditure is a capital expenditure or revenue expenditure. Further, it is submitted that the expenditure did not being into existence any capital asset. The view of the Assessing Officer that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot applicable in this case. Therefore, technology cost of Rs. 2 lakhs should not be treated as capital expenditure. (c) Non-adjustable deposit for membership subscription Rs. 30,00,000 and deposit for VSAT Rs. 10,00,000 paid to National Stock Exchange (NSE) The non-adjustable deposit of Rs. 30 lakhs cannot be withdrawn for a minimum period of 5 years even if the trading member ceases or discontinues trading in the exchange. Since the appellant company follows going concern concept, it does not intend to discontinue its operation in the forceable future and it does not intend to withdraw the deposit in future. Thus in substance the amount of deposit should be considered as revenue expenditure incurred wholly and exclusively for the purpose of business of the appellant and the same should be allowed under section 37(1). Deposit for Very Small Aperture Terminal (VSAT) Rs. 10 lakhs was made to NSE in order to facilitate the appellant company to have access to on-line trading facilities. The VSAT receives and transmits data to and from main frame computer of NSE using a satellite link. It may kindly be noted that VSAT does not belong to the appellant company. The ownership lies wi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct from 1-4-1962 to state that the work 'plant' does not include tea bushes or live stock. The very fact that the definition is inclusive and not exhaustive means that the items mentioned therein are only illustrative and any article can be a plant if it satisfies the tests laid down by the courts from time to time. The delivery of the subjects chosen and the marked extremities to which the definition has extended itself makes the legislative intent much too clear and audible to need any emphasis, namely, that it has given the term 'plant' the widest meaning possible. The word 'plant' in its ordinary meaning is a work of wide import and it must be broadly construed having regard to the facts that articles like books and surgical instruments are expressly included in the definition in section 43(3). It includes any article or object, fixed or movable, live or dead used by a businessman for carrying on his business. It is not necessarily confined to an apparatus which is used for mechanical operations or processes or is employed in mechanical or industrial business. An article to qualify as 'plant' must, furthermore, have some degree of durabilit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t but an intangible assets. Therefore, the question of allowable depreciation on the same for the assessment year 1996-97 does not arise. The alternative plea of the appellant is also rejected." 3.3 Still aggrieved, the assessee is in further appeal before the Tribunal. Ground No. 1 raised in this appeal is as under:- "That on law and facts of the case the learned Commissioner of Income Tax (Appeals) has erred in confirming the addition made by the Assessing Officer on account of development fee of Rs. 70,00,000 and fees for operating on the floor Rs. 1,50,000 paid to Calcutta Stock Exchange Association, admission fee of Rs. 6,00,000 and technology cost of Rs. 2,00,000 paid to OTC Exchange of India and non-adjustable deposit for membership subscription of Rs. 30,00,000 and deposit for Very Small Aperature Terminal (VSAT) Rs. 10,00,000 on the ground these expenses are in the nature of capital expenditure". 3.4 Ground No. 1 relates to the questions referred to this Special Bench. The other grounds are not before us. The alternative claim of the assessee raised in Ground No. 2 that if the expenses specified in ground No. 1 are treated as capital expenditure, depreciation applicab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee's case of the payments being of revenue nature. 2.4 The Tribunal firstly relied on the judgment of the Hon'ble Supreme Court in the case of Empire Jute Co. Ltd [124 ITR 1]. However, in that particular case itself, the Supreme Court held that the test of enduring benefit is not a certain of conclusive test and also cannot be applied blindly or mechanically without regard to the particular facts and circumstances of a case. 2.5 The Hon'ble Supreme Court discussed in that connection as below: 'There may be cases where expenditure, even if incurred for obtaining an advantage of enduring benefit, may, nonetheless, 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.... It is only where the advantage is in the capital field that the expenditure would be disallowable on an application of this test. If the advantage consists merely in facilitating the assessee's trading operations or enabling the management and conduct of assessee's business to be carried on more efficiently or more profitably wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enduring benefit is merely incidental and is not of the nature of acquisition of an asset of enduring nature. Hence, by applying the tests as laid down in the above mentioned decisions, it has got to be concluded that by making payment of Admission Fee or Development Fee, the assessee has not acquired any capital asset but has merely acquired the right to conduct its business. Hence, the payments are required to be treated as revenue expenditure. 3.2 In this connection, a reference may be made to the following cases where incurring of expenses towards admission to some similar organizations has been either considered by the CBDT itself as revenue expenditure or held in judicial pronouncements to be so. I. Hon'ble Calcutta High Court held in the case of Naskarpa Jute Milk Co. v. CIT, [Reference No. 237 of 1969 dated 12-12-1974] that admission fee for membership of East India Hessian Exchanges Ltd. constitutes revenue expenditure. A Stock Exchange stands pari materia with a Jute and Hessian Exchange and hence the above mentioned judgment of Calcutta High Court can be considered to support the proposition that expenses incurred for acquisition of membership of Stock Exchanges ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... towards the charges on year to year basis as per details given below: Financial Year VSAT charges recovered 1995-96 1,23,000 1996-97 2,72,785 1997-98 2,67,874 1998-99 2,96,962 9,60,621 6.3 The C.B.D.T. itself allows Security Deposit for Telex connection and under Tatkal Telephone Deposit Scheme as revenue expenditure under section 37(1) vide Circular No. 420 dated 4-6-1985 and No. 671 dated 27-10-1993. Hence, it has got to be argued that deposit for VSAT, although one-time payment, being of the nature of adjustable against expenditure is required to be allowed as revenue expenditure. 7. Hence, ultimately, it is pleaded that all the expenditures as claimed by the assessee-company be kindly allowed as revenue expenditure." 4.1 The learned counsel for the assessee referred to the following Circulars issued by the C.B.D.T.:- (i) Board's Circular No. 420 dated 4-6-1985 (File No. 204/10/83-ITA) saying that non-interest-bearing security deposit to cover a part of the cost of the postal department equipment installed at the premises of the subscriber of Telex connection, which will also protect the Postal Department against any unpaid dues may be treated as a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Board's F. No, 10/67/65-IT(AI) dated 26-8-1965 stating that as the advantages accruing to a Company as a result of getting its shares listed on a Stock Exchange contain substantial advantages pertaining to its day-to-day business, it has been decided that such expenses should be considered as laid out wholly and exclusively for the purposes of the business and, therefore, admissible as business expenditure under section 37(1) of the Act. On the strength of these Circulars, Mr. S.K. Tulsiyan submitted that the expenses in question incurred by the assessee during the year under consideration are to be treated as revenue expenditure deductible in computing assessee's profits and gains of business of shares and stock trading and brokerage which was being carried on by the assessee during that year inasmuch as they have been laid out wholly and exclusively for the purpose of assessee's day-to-day business. 4.2 In support of the assessee's case, reliance was also placed on the following decisions:- (i) Stock Exchange, Ahmedabad v. Asstt. CIT [2001] 248 ITR 209 (SC). (ii) Dy. CWT v. Ashwin C. Shah [2002] 82 ITD 573 (Mum.). (iii) Videsh Sanchar Nigam Ltd v. Jt. CIT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o fixed capital and not to circulating capital. 7. Recent commentary of Kanga, Palkhiwala & Vyas makes a point about the relevance of commercial practice in contrast to the straitjacket of judicial interpretations based on technicalities. The commercial practice, which is to treat the membership card as a commercial right which is transferable, has been taken note at page 96 of the assessee's paper book. This contrasts starkly with the judicial view expressed as obiter in 248 ITR 209 (SC). Moreover the commercial view is in harmony with the legislative intent as expressed in section 47(xi). In view of this, the view taken by the Hon'ble Mumbai Tribunal in 82 ITD 537 does not appear to be correct. On the contrary the view taken by the Hon'ble ITAT Cal-A Bench in 80 ITD 79, appears to be the correct view. 8. The general commercial and tax practice is to treat profit on sale of Stock Exchange ticket as capital gains. Therefore, Stock Exchange ticket or membership is a capital asset and expenses incurred in acquiring it cannot be allowed as a revenue expenditure. This case clearly brings out that Stock Exchange ticket is transferable and that too at a huge price. The re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the same line of business activity. In our case the assessee was going to do broker's business for the first time. 14. Training to employees by OTCEI for making them familiar with the operations of the institution is akin to training imparted to employees for learning the operation of a new machinery. Here the training cost has to be capitalized. In this context, I rely upon McGraw Ravindra Labs 132 ITR 401 (Guj.) where expenditure on training an employee for manufacturing a new product, was held to be a capital expenditure. 15. In respect of it's claim that training expenses are of revenue nature, in para 5 of written submissions, assessee has relied upon Motor Sales 87 ITR 595 (All.). But in this case the assessee was an existing dealer in motor sales. He took a new dealership for Mercedes cars. For this purpose staff was sent for training. In our case the business of stock trader is a new business. Therefore, this case is distinguishable on facts. 16. Payment to VSAT has been appropriated in the subsequent years. Therefore, at best it can only be allowed in the years of appropriation. However, as it was for setting up the structure of the new business to do on-li ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... amount or conclusive or of universal application to decide the question of expenditure being of capital nature or of revenue nature. It will depend on the facts and circumstances of the case. The various tests or principle or criterion formulated by various decisions must be applied with proper regard to the facts of each case. No strict norms can be settled to decide the issue in a particular case. The same is to be decided in the peculiarities and circumstances of that case on application of general principle or tests or criterion laid down by the Courts from time to time. The general tests to be applied to distinguish capital expenditure from revenue expenditure have been enumerated in various decisions. There is no difficulty in enumerating those tests. But the difficulty arises when the Courts are called upon to apply those tests to a given set of facts. Barring rare exceptions, the facts of no two cases are similar. 7.2 In a nut-shell, it may be said that no one test or principle or criterion is paramount or conclusive or of universal application. Each factor by itself is not decisive. Ultimately, the question will have depend on the facts and circumstances of each case. It ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing such an expenditure as properly attributable not to revenue but to capital." The parenthetical clause in the Viscount Cave's test should be given its due significance. The Viscount Cave's test, as the parenthetical clause shows, must yield where there are special circumstances leading to a contrary conclusion. The test of enduring benefits is 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. 7.5 In this connection, making reference to the following decisions would be useful. (i) The Hon'ble Supreme Court in the case of Punjab State Industrial Development Corpn. Ltd. v. CIT [1997] 225 ITR 792, 795-96, referred to above Viscount Cave's test and the decision of the Supreme Court in the case of Empire Jute Co. Ltd. v. CIT [1980] 124 ITR 1, 10 and observed as under: "This test as the parenthetical clause shows must yield where there are special circumstances leading to a contrary conclusion. Briefly put, it is not a strait-jacket formula and the question will have to be determined in the backdrop of facts of each case. The test laid down can at best be a g ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... achinery was acquired, the cost of such acquisition cannot be deducted out of the profits by claiming that it relieves the annual labour bill, the business, has acquired a new asset, that is, machinery. The expressions 'enduring benefit' or 'of a permanent character' were introduced to make it clear that the asset or the right acquired must have enough durability to justify its being treated as a capital asset. 3. Whether for the purpose of the expenditure, any capital was withdrawn, or, in other words, whether the object of incurring the expenditure was to employ what was taken in as capital of the business. Again, it is to be seen whether the expenditure incurred was part of the fixed capital of the business or part of its circulating capital. Fixed capital is what the owner turns to profit by keeping it in his own possession. Circulating or floating capital is what he makes profit of by parting with it or letting it change masters. Circulating capital is capital which is turned over and in the process of being turned over yields profit or loss. Fixed capital, on the other hand, is not involved directly in that process and remains unaffected by it.' This ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ied to the facts of each particular case in the manner above indicated. It has been rightly observed that in the great diversity of human affairs and the complicated nature of business operations it is difficult to lay down a test which would apply to all situations. One has therefore got to apply these criteria one after the other from the business point of view and come to the conclusion whether on a fair appreciation of the whole situation the expenditure incurred in a particular case is of the nature of capital expenditure or revenue expenditure in which latter event only it would be a deductible allowance under section 10(2)(xv) of the Income Tax Act. The question has all along been considered to be a question of fact to be determined by the Income Tax authorities on an application of the broad principles laid down above and the Courts of law would not ordinarily interfere with such findings of fact if they have been arrived at on a proper application of those principles. The expression 'once and for all' used by Lord Dunedin has created some difficulty and it has been contended that where the payment is not in a lump sum but in instalments, it cannot satisfy the tes ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f trade at a comparatively early date.' Latham, C.J. observed in Sun Newspapers Ltd. & Associated Newspapers Ltd v. Federal Commissioner of Taxation (61 CLR 337 at 355):- "When the words 'permanent' or 'enduring' are used in this connection it is not meant that the advantage which will be obtained will last for ever. The distinction which is drawn is that between more or less recurrent expenses involved in running a business and an expenditure for the benefit of the business as a whole'... e.g. ... 'enlargement of the goodwill company' - 'permanent improvement in the material or immaterial assets of the concern'. To the same effect are the observations of Lord Greene, M.R., in Henriksen (H.M. Inspector of Taxes) v. Graf ton Hotel Ltd, [1942] 24 Tax Cas. 453 above referred to." (iii) In the case of Empire Jute Co. Ltd. v. CIT [1980] 124 ITR 1, 10 & 13, Their Lordship of the Supreme Court has held thus: "At page 7: In the first place, it is not a universally true proposition that what may be a capital receipt in the hands of the payee must necessarily be capital expenditure in relation to the payer. The fact that a certain payment c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ure 'so long as the benefit is not so transitory as to have no endurance at all'. There may be cases where expenditure, even if incurred for obtaining advantage of enduring benefit, may, nonetheless, 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. 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. At Pag ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Lahore) (FB) and thus observed:- "In the judgment appealed against, the learned judges have referred to the dictum of Viscount Cave L.C. in Atherton v. British Insulated and Helsby Cables Ltd [1925] 10 TC 155, 192 (HL), which runs as follows:- 'But when an expenditure is made, not only once and for all, but with a view to bringing into existence an asset or an advantage for the enduring benefit of a trade. I think that there is very good reason (in the absence of special circumstances leading to an opposite conclusion) for treating such an expenditure as properly attributable not to revenue but to capital.' The Division Bench further pointed out that this dictum was stated with approval by this Court in Assam Bengal Cement Co. Ltd v. CIT [1955] 27 ITR 34, where this court, inter alia, approved the decision of a Full Bench of the Lahore High Court in In re Benarsidas Jagannath [1947] 15 ITR 185 (Lah.)(FB) holding that expenditure may be treated as properly attributable to capital when it is made not only once and for all, but with a view to bringing into existence an asset or an advantage for the enduring benefit of the trade. If, on the other hand, what is got rid of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld should make us a little slow and circumspect in too readily pigeon-holding an outlay, such as this, as capital. (ii) In the infinite variety of situational diversities in which the concept of what is capital expenditure and what is revenue arises, it is well nigh impossible to formulate any general rule, even in the generality of cases, sufficiently accurate and reasonably comprehensive, to draw any clear line of demarcation. However, some broad and general tests have been suggested from time to time to ascertain on which side of the line the outlay in any particular case might reasonably be held to fall. These tests are generally efficacious and serve as useful servants; but as masters they tend to be overexacting. (iii) The question in each case would necessarily be whether the tests relevant and significant in one set of circumstances are relevant and significant in the case on hand also. Judicial metaphors are narrowly to be watched, for, starting as devices to liberate thought, they end often by enslaving it. The idea of 'once for all' payment and 'enduring benefit' are not to be treated as something akin to statutory conditions; nor are the notions of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rtain or conclusive test and it cannot be applied blindly and mechanically without regard to the particular facts and circumstances of a given case." (vii) In the case of Bikaner Gypsums Ltd. v. CIT [1991] 187 ITR 39, 49, Their Lordships of Supreme Court held that where the assessee, has an existing right to carry on a business, any expenditure made by it during the cousre of business for the purpose of removal of any restriction or obstruction or disability would be on revenue account, provided the expenditure does not acquire any capital asset. Payments made for removal of restriction, obstruction or disability may result in acquiring benefits to the business, but that by itself would not acquire any capital asset. (viii) Their Lordships of Supreme Court in the case of CIT v. Madras Auto Service (P.) Ltd. [1998] 233 ITR 468 has held as under:- Head notes "The general principles applicable in determining whether a particular expenditure is capital or revenue expenditure are as follows: (1) Outlay is deemed to be capital when it is made for the initiation of a business, for extension of a business, or for a substantial replacement of equipment; (2) Expenditure may be treate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ital expenditure is often very thin and hazy. None of the tests evolved from time to time to determine what is attributable to capital and what to revenue is either exchaustive or of universal application. Each case depends on its own facts. To decide, therefore, on which side of the line the expenditure falls, it is necessary to look at the nature of the business, the nature of the expenditure and the nature of the right acquired. If it is incurred by the assessee for the purpose of creating, curing or completing his title to capital, it must be regarded as capital expenditure. But, if it is for the purpose of protecting his business, it would be considered as revenue expenditure. Moreover, it is the true nature of the expenditure that is relevant and not the description given to it by the assessee in his books of account or other documents." (x) The Hon'ble Calcutta High Court in the case of CIT v. Kalinga Otto (P.) Ltd. [1983] 139 ITR 710 has observed and held as under:- Head Notes "Expenditure incurred for bringing into existence an asset or advantage of enduring benefit would be of a capital nature. However, the expression "enduring or abiding benefit" is not a stati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urther held as under:- "Held, that, in view of the admitted position that serving of hot drinks to stewards, etc., by the race club on race days was an age-old custom in the field of racing and such drinks were served in order to enable the employees to put forth their best efforts in making all the arrangements to ensure the smooth conduct of the race, such as expenditure is incidental to the trade and as such the expenditure was incurred wholly and exclusively for the purposes of the business. The disallowance of Rs. 40,000 could not be sustained." (xii) In the case of CIT v. British India Corpn. Ltd. [1987] 165 ITR 51, the Hon'ble Supreme Court on the facts of that case has held that the payment of Rs. 50,000 for meeting initial expenses for establishing the distributorship had to be considered to be a revenue expenditure by observing and holding as under:- Head notes "The respondent company, which carried on, inter alia, the business of tanning hides and manufacture of leather products, entered into an agreement with CW & Co. of London whereby CW & Co. agreed to permit the respondent to use a number of registered trade marks and to disclose the technique, practices ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rd off competition in business to a rival would constitute capital expenditure if the object of making that payment is to derive an advantage by eliminating the competition over some length of time; the same result would not follow if there is no certainty of the duration of the advantage and the same can be put to an end at any time. How long the period of contemplated advantage should be, in order to constitute enduring benefit, would depend on the circumstances and the fact of each individual case. It was further held that although an enduring benefit need not be of an everlasting character, it should not be so transitory and ephemeral that it can be terminated at any time at the volition of any of the parties. (xiv) A long line of decisions have laid down that when an expenditure is made with a view to bringing into existence an asset or an advantage for the enduring benefit of a trade, there is good reason (in the absence of special circumstances leading to the opposite conclusion) for treating such an expenditure as properly attributable not to revenue but to capital - CIT v. Ashok Leyland Ltd. [1972] 86 ITR 549, 553 (SC). But a payment made to remove the possibility of a r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tled law that if according to the revenue laws the assessee is entitled to treat a sum as a revenue expenditure, then that legal right of the assessee is not self-estopped by the treatment given by the assessee to it in its own books of account. (xix) The nature of a receipt as capital or revenue is not always determinative of the nature of the outgoing in the hands of the person who pays for it. It is said, and truly said, that whether payment is a revenue payment or a capital payment may depend upon the angle from which one looks at it - the payment may be a revenue payment from the point of view of the payer and a capital payment from the point of view of the receiver and vice versa - CIT v. Ciba of India Ltd. [1968] 69 ITR 692, 700 (SC); Empire Jute Co. Ltd. v. CIT [1980] 124 ITR 1, 7 (SC). 7.6 From these above referred decisions, we may draw the following general principles:- 1. In the indefinite variety of situational diversities in which the concept of what is capital expenditure and what is revenue arises, it is well nigh impossible to formulate any general rule, even in the generality of cases, sufficiently accurate and reasonably comprehensive, to draw any clear line ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... something akin to statutory conditions; nor are the notions of 'capital' or 'revenue' a judicial fetish. What is capital expenditure and what is revenue are not eternal varieties but needs be flexible so as to respond to the changing economic realities of business. The expression 'asset or advantage of an enduring nature' was evolved to emphasise the element of a sufficient degree of durability appropriate to the context. 9. By 'enduring' is meant enduring in the way that fixed capital endures and it does not connote a benefit that endures in the sense that for a good number of years it relieves the assessee of a revenue payment or a disadvantage. A payment made by the assessee to free himself from a capital liability, is capital expenditure, while a payment which frees an assessee from the liability to make recurring revenue payments or annual revenue payments is revenue expenditure. 10. Where the assessee has an existing right to carry on a business, any expenditure made by it during the course of business for the purpose of removal of any restriction or obstruction or disability would be on revenue account, provided the expenditure does not ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... If the expenditure is recurring and is incurred during the course of business or manufacture, it would be revenue expenditure. 19. Simply because the payment in the hands of the recipient has been considered as capital receipts, it is not necessary that in all cases it will have the same character in the hands of the person who has made the payment and vice versa. Whether a payment is a revenue payment or a capital payment is depend upon the angle from which one looks at it. 20. It is true nature of the expenditure that is relevant and not the name or description or treatment given to it by the assessee in his books of account or other documents. Fixed and circulating capital test 7.7 From foregoing discussion it is clear that the test of enduring benefit is not a ceratin or conclusive test and it cannot be applied blindly and mechanically without regard to the particular facts and circumstances of a given case. Thus, in those cases, where the test of enduring benefit is of no avail, one may go to the test of fixed or circulating capital and consider whether the expenditure incurred was part of the fixed capital of the business or part of its circulating capital. As held by T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... no consequence. It was further observed by the Court in this case as under:- It has been rightly observed that in the great diversity of human affairs and the complicated nature of business operations it is difficult to lay down a test which would apply to all situations. One has therefore got to apply these criteria one after the other from the business point of view and come to the conclusion whether on a fair appreciation of the whole situation the expenditure incurred in a particular case is of the nature of capital expenditure or revenue expenditure in which latter event only it would be a deductible allowance under section 10(2)(xv) of the Income-tax Act. The question has all along been considered to be a question of fact to be determined by the Income Tax authorities on an application of the broad principles laid down above and the Courts of law would not ordinarily interfere with such findings of fact if they have been arrived at on a proper application of those principles. 7.8 With regard to test of fixed or circulating capital, Their Lordship of Supreme Court in the case of Empire Jute Co. Ltd. has observed as under:- "Another test which is often applied is the one ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... categories. Moreover, there may be cases where expenditure, though referable to or in connection with fixed capital, is nevertheless allowable as revenue expenditure, e.g., an expenditure for preserving and maintaining capital asset as pointed out in the case of Empire Jute Co. Ltd. v. CIT [1980] 124 ITR 1, at page 11 (SC). Similarly, interest paid on the unpaid purchase price of a capital asset after the commencement of business is allowable as business expenditure. Likewise, a guarantee commission paid to a bank for guaranteeing deferred payment of the purchase price of a capital asset is revenue expenditure as held by Hon'ble Supreme Court in the case of Madras Industrial Investment Corpn. Ltd. v. CIT [1997] 225 ITR 802, 808 and by Bombay High Court in the case of Taparia Tools Ltd. v. Jt. CIT [2003] 260 ITR 1O2 (Bom.). 7.10 Initial expenditure Broadly speaking, if the expenditure is for the initial outlay or for acquiring or bringing into existence an asset or advantage of an enduring benefit to the business that is being carried on, or for extension of the business that is going on, or for a substantial replacement of an existing business assets, it would be capital expe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... set up a new manufacturing unit and paid the Electricity Board, the cost of providing an overhead service line which was to remain the property of the Board, the payment was allowed as revenue expenditure - CIT v. Excel Industries Ltd. [1980] 122 ITR 995 (Bom.) SLP rejected 133 ITR (St.) 54; CIT v. Gujarat Mineral Development Corpn. [2001] 249 ITR 787 (SC). (v) The premium paid by the assessee to a Government Corporation to enable the Corporation to lay pipe line for supplying water to the assessee's factory was held to be a revenue expenditure - CIT v. National Machinery Mfrs. Ltd. [1991] 191 ITR 483 (Bom.); CIT v. Bharat Commerce & Industries Ltd. [1990] 184 ITR 90 (Delhi). (vi) The contribution made by a sugar mill towards the boring of wells and construction of godown on the land belonging to cane growers was held to be on revenue account in the case of R.B. Narayan Singh Sugar Mills (P.) Ltd. v. CIT [1981] 129 ITR 698 (Delhi). (vii) In Madras Auto Service (P.) Ltd.'s case, the Hon'ble Supreme Court allowed as revenue expenditure the entire cost incurred by the assessee on the construction of a building on the land taken on a long lease by the assessee since t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Assessing Officer and CIT(A) is that the expenses incurred were of capital in nature. Admitedly, there is a finding by the Assessing Officer that this is the first year of assessee's business and the assessee is engaged in the business of share-trading and share-brokerage, but there is no such allegation by the Assessing Officer that expenses claimed by the assessee were incurred before set-up or commencement of assessee's business of share-trading and share-brokerage during the year. As stated by the Assessing Officer himself, the assessee was engaged in the business of share-trading and share-brokerage in this year. The certificate for commencement of business granted by Registrar of Companies to the assessee on 14-2-1995 reveals that the assessee was entitled to commence business on 14-2-1995. The assessee effected purchase and sales of shares amounting to Rs. 3,82,76,905 and Rs. 3,93,62,811 respectively during the year in question. The assessee's business of share trading had already set up or commenced before the assessee had incurred the expenses in question. The Department has not pointed out any evidence to show and establish that the assessee's business ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ertain guidelines approved by the Hon'ble Supreme Court in the case of CIT v. Sarabhai Management Corpn. Ltd. [1991] 192 ITR 151 are useful to be taken note of. It was held therein that, "However, the High Court has pointed out rightly, in our opinion, that in this case, the Tribunal has proceeded on a misapprehension regarding the nature of the assessee's business. It has analysed the various component activities of the assessee's business and pointed out that two categories of the activities of the business had been carried on during the previous year in question. The assessee had purchased a property; it was on the look out for persons to whom it could be let out; it had been able to get a customer; and it had carried out repairs, rewiring, installation of lift and other steps in the process of getting the premises converted from a residential house into a business and storage accommodation conforming to the requirements of the customer. Even, if, as submitted by Dr. Gauri Shankar, the first category of activity referred to by the High Court, viz., the acquisition of a property for being let out can be said to be only a preparatory state (analogous to the acquisition ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... important to consider whether the expression used in the Indian statute for setting up a business is different from the expression Mr. Justice Rowlatt was considering, viz., 'commencing of the business'. It seems to us that the expression 'setting up' means, as is defined in the Oxford English Dictionary, 'to place on foot' or 'to establish', and in contradistinction to 'commence'. The distinction is this that when a business is established and is ready to commence business then it can be said of that business that it is set up. But before it is ready to commence business it is not set up. But there may be an interregnum, there may be an interval between a business which is set up and a business which is commenced and all expenses incurred after the setting up of the business and before the commencement of the business, all expenses during the interregnum, would be permissible deductions under section 10(2)." 7.17 The Hon'ble Bombay High Court in the case of CIT v. Piem Hotel (P.) Ltd. [1994] 209 ITR 616 has held as under:- "In the case of CWT v. Ramaraju Surgical Cotton Mills Ltd. [1967] 63 ITR 478 (SC), a somewhat similar question ar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce business then it can be said of that business that it is set up. The words 'ready to commence' would not necessarily mean that all the integrated activities are fully carried out and/or wholly completed. The requirement is also complied with in a given case where an assessee had undertaken the first of the kind of integrated activities which the business is overall comprised of. It is not necessary that all the categories of its business activities must start either simultaneously or that the last stage must start before it can be said that the business was set up. The test to be applied is as to when a businessman would regard a business as having commenced and the approach must be from a common sense point of view. The question whether a business has been set up or not is always a question of fact which has to be decided on the facts and in the circumstances of each case." In the light of the settled legal position, the Hon'ble High Court decided the question before them as under:- "In the light of the aforesaid settled legal position, therefore, it is easy to visualise that for the setting up of the business of processing marine products, the assessee, during t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e business was set up or the business was ready to commence except by stating that this is the first year of assessee's business of share-dealing and share-brokerage. Claim with regard to the payment of development fee paid to Calcutta Stock Exchange 7.22 An amount of Rs. 70,00,000 on account of development fee paid to Calcutta Stock Exchange was claimed as an expenditure of revenue in nature. The Assessing Officer disallowed the same as of capital in nature. The CIT(A) upheld the Assessing Officer's action. 7.23 We have considered the rival contentions of both the parties. At this stage, it is pertinent to note that a similar issue as to whether the development fee paid to Calcutta Stock Exchange is to be regarded as capital or revenue in nature, had come for consideration before the Hon'ble jurisdictional Calcutta High Court in the case of Rajendra Kumar Bachhawat v. CIT [IT Appeal No. 44 of 2002], where the Hon'ble High Court vide their order dated 14th August, 2002 has held as under:- "The assessee paid a sum of Rs. 25 lakhs for development purposes for the purpose of becoming a member of the Calcutta Stock Exchange. 'In the assessment years in question ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e floor of the Exchange would certainly facilitate the assessee's business operations of share trading or share-brokerage or enable the management and conduct of assessee's business of share-dealing and share brokerage to be carried on more efficiently or more profitably while leaving the fixed capital untouched. Though this advantage to operate on floor of the Stock Exchange may endure for an indefinite future, but it is related or connected to the assessee's day-to-day business operations and activities and it help the assessee in profit making. This expenditure cannot be held to acquire a capital asset or enduring advantage but is to be held to have incurred for the purpose of carrying on business of share trading and share-broker. By making the said lump sum payment towards fees for operating on the floor of the Stock Exchange, the assessee has got rid of annual or recurring business expenses. It does not bring into existence a capital asset. The payment made by the assessee to enable itself to operate on the floor of Stock Exchange is for making use of system of share trading owned and controlled by the Stock Exchange and for services utilised by the assessee for t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... same nature as of the development fee paid to Calcutta Stock Exchange to become a member thereof by acquiring one or more share of the said Calcutta Stock Exchange Corporation Ltd. The "member" as defined in Article 1 of the Articles of Association of the Calcutta Stock Exchange Association Ltd. means any individual or a company or a Financial Corporation registered in the Register as the owner of the one or more shares in the Association. Thus, the payment of development fee to become a member of the Association and to acquire one or more shares in the Calcutta Stock is on different footing than that of making payment to operate on the floor of the Stock Exchange. Applying the cumulative effect of all the decisions referred to above in foregoing papers and the principles emerging therefrom to the facts of the present case, and having regard to the nature and object of the payment of fee for operating on the floor of the Stock Exchange, we hold that the payment of Rs. 1,50,000 made to Calcutta Stock Exchange for operating on the floor of the Exchange is allowable as being of revenue in nature. Payment of admission fee and technology cost to OTC Exchange of India 7.28 With regard ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be a limit upto which (as a multiple of the networth committed by you) the total business exposure allowed to be carried out by you on the OTCEI. OTCEI reserves the right to demand security deposit in a manner satisfactory to OTCEI for permitting any business on OTCEI. 4. OTCEI reserves the right to review, from time to time your operations on the exchange as to the level of business and the manner in which the business is conducted. 5. OTCEI, at its absolute and unfettered discretion, reserves the right to review dealership if your dealership or your operations are found to contravene any of provisions of its Bye-Laws, Rules and Regulations. 6. OTCEI will prescribe, from time to time, such code of conduct as it may deem fit and necessary for the smooth operations on the OTC Exchange of India. You will abide by such code of conduct and non-compliance of the same may result in review of your dealership. 7. You will be required to comply with Securities Contracts (Regulations) Act & Rules & Multiple Membership Rules. In addition you will also be required to comply with the Guidelines/ Enactments, Notification issued/modified by SEBI & Ministry of Finance from time to time. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... personnel shall be required to undergo and qualify within a period of 3 months or such other period as may be deemed fit by OTCEI, such qualification procedures as may be prescribed by OTCEI in this regard time to time, for the purpose of operating the counter. (C) OTCEI reserves the right to suspend trading by the counter till fresh appointments are made to the satisfaction of OTCEI. (D) In the event of the dealer failing to employ a qualified person within a further period of three months from the date of the operating personnel leaving the employment or such other period as deemed fit by OTCEI. OTCEI reserves the right to review/ suspend the Dealership on the expiry of the said period. (E) OTCEI may permit the personnel to operate the counter before the completion of the qualification procedure, at the sole risk of the dealer for all such failures/mistakes that may arise from counter. 18. (A) You will pay the balance of Rs. 5,00,000 towards the Admission Fee on or before September 15, 1995. (B) You will pay the Annual Dealership Fee of Rs. 25,000 in advance for the period September, 1995 - September, 1996 by September 15, 1995. (C) OTCEI reserves the right to increa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ther seen that the admission fee of Rs. 6,00,000 was neither refundable nor was the dealership transferable. If the assessee decides or force to terminate the dealership or if the OTC Exchange of India terminates the dealership, this fee of Rs. 6,00,000 was not returnable by the OTC Exchange of India. A limit upto which the total business exposure allowed to be carried out by the assessee on the OTC Exchange of India has been prescribed by the OTCEI, and OTCEI reserves their right to demand security deposit in a manner satisfactory to OTCEI for permitting any business on OTCEI. There is no doubt that the security deposit so demanded by OTCEI for permitting any business on OTCEI is on separate footing. The dealer is required to abide by such code of conduct, various Rules and Regulations, guidelines, enactments and notifications, etc. as prescribed from time to time by OTCEI or under other laws for time being in force, in defiance thereof the dealership may result in for review by OTCEI. It is also seen that holders or donees of the Power of Attorney given by the assessee are not allowed to operate the OTC counter, except with the prior written consent of the OTC Exchange of India. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y advantage of enduring benefit on capital field. 7.31 It is not in dispute that the said dealership was not transferable and neither the admission fee of Rs. 6,00,000 was refundable in any case. Even if the assessee decides or force to terminate the dealership or if the OTC Exchange of India terminates the dealership, the fee of Rs. 6,00,000 as admission fee was not refundable to the assessee as is clearly evident from the terms and conditions of appointment as a dealer of OTC Exchange of India. Similarly the payment of technology cost for providing training to the assessee's employees for the purpose of making them qualified as per OTC Exchange of India's qualification procedure is found to be necessary or condition precedent for carrying on day-to-day business as a dealer on OTC Exchange of India and to operate the counter thereof. The aim and object of the aforesaid expenditures are thus for carrying on the assessee's business and as such these are of revenue in nature. On the facts of this case, we find no reason to hold that the assessee has derived an advantage of enduring nature on capital field or otherwise has acquired any capital asset. 7.32 The contention ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gar factory on cane development programme, membership fee to be a member of Indian Institute of Packaging, membership fee for being a member of the Indian Institute of Foreign Trade and expenses incurred by a Company for getting its shares listed on a Stock Exchange, the Board has taken a view that these expenditures may be considered as laid out wholly and exclusively for the purposes of the business and are as such allowable as business expenditure under section 37(1) of the Act as stated in the Board's Circular/Notifications, which have already stated above in paragraph 4.1 hereto. 7.34 Applying the various principles and test as discussed in foregoing paras and in the light of the cumulative effect of all the decisions, we are of the considered view that the payment of admission fee to become a dealer on OTC Exchange of India and to operate the counter, and the payment for imparting training to assessee's employees so as to make them qualified as per guidelines laid down by OTC Exchange of India, are to be held as revenue expenditure. We, therefore, set aside the orders of the authorities below on this issue and alow the assessee's claim of deduction of the aforesa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Secretary, The Peerless General Finance & Investment Co. Ltd., Park Centre, 24, Park Street, Calcutta -700 016. Dear Sir, Please refer to your application for Trading Membership of the Wholesale Debt Market of the NSEIL. We are pleased to inform you that based on the written test and the interview held thereafter, it has been decided to grant you membership subject to your fulfilling the conditions as given in Annexure A on or before the dates as stipulated. You are requested to confirm to us in writing that you accept the offer of admission as a Trading Member alongwith the first instalment of Rs. 55 lakhs (Rs. Fifty five lakhs) towards the Advance Annual Subscription fee, Non Adjustable deposit and a part of the Interest Free Security Deposit by a Demand Draft favouring National Stock Exchange of India Ltd. payable at Bombay. The balance amount of Rs. 55 lakhs (Rupees fifty five lakhs) towards the interest Free Security Deposit and the VSAT installation and equipment cost will be payable as indicated in the payment schedule in Annexure B. NSE will provide computerized on line screen based trading facilities on equal access basis to all the trading Members. The communi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y NSEIL, it is seen that the right of Trading Membership on the Wholesale Debt Market of the NSEIL is not transferable for a minimum period of five years. The membership granted by NSEIL is a Trading Membership of the Wholesale Debt Market of NSEIL and not a Corporate Membership in the equity of NSEIL. The person holding Trading Membership of the Wholesale Debt Market of NSEIL does not acquire or get any share in the NSEIL. The NSEIL as a company has been promoted by the consortium of financial institutions. It is envisaged as pioneer institution to promote retail trade for debt securities. The NSE has two segments for trading in securities: (1) Capital market segment (equity, debentures and hybrids), and (2) Wholesale Debt Market (WDM) or Money Market Segment (T-bills, CPs, CDs, PSU bonds etc.). The assessee in the present case has been granted Trading Membership of the Wholesale Debt Market (WDM), with the help of which the assessee can carry on its business smoothly and efficiently by using the network of computers, which is connected to the Central Computer of the NSE through a Satellite link up. It has facilitated the assessee to do business transactions electronically using t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... area of dealing or operating in shares and securities has undergone vast changes to protect and safeguard the interests of investors, dealers or brokers. The Trading Membership granted to the assessee enables the assessee to use and utilize the network of NSEIL for its trading operations at a nationwide level so as to facilitate it to carry on business smoothly, extensively, efficiently and profitably. The dealership is also not transferable within first five years. Even if it is allowed to be transferred at a later stage, it is to be made in accordance with the terms and conditions provided by NSEIL. In this process, the assessee has not acquired any capital asset or an advantage of enduring benefit in capital field. 7.39 Considering the totality of the facts and circumstances of the case as discussed above and having regard to the nature of Trading Membership of the Wholesale Debt Market of the NSEIL and nature and character of the payment towards non-adjustable deposit for said Trading Membership and applying the cumulative effect of all tests and criterians, and of various decisions referred to in foregoing paras in the light of rapidly changing and advancing economic and comm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aid by any stretch of imagination that by making payment for availing VSATs facilities and services the assessee has acquired any capital asset or advantage of enduring benefit in capital field. However, it is noticed by us that out of the deposit of Rs. 10,00,000 for installation of VSATs equipments, the NSE has appropriated or adjusted the following amount towards the charges on year to year basis as pointed out by the assessee himself:- Financial Year VSAT charges recovered 1995-96 1,23,000 1996-97 2,72,785 1997-98 2,67,874 1998-99 2,96,962 9,60,621 On perusal of the said details, it is thus clear that an amount of Rs. 1,23,000 towards charges for VSATs services and facilities availed by the assessee is related to the period relevant to the assessment year under consideration. Therefore, the assessee's claim to the extent of Rs. 1,23,000 being revenue expenditure is only found to be allowable in the present assessment year under consideration and rest of the amount are allowable in subsequent years to the extent of such amount as relatable to the respective years. We order accordingly. 7.41 In the result, we answer the question referred to the Special Be ..... 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