High Court Of Rajasthan
CIT vs. Wolkem (P) Ltd. Co.
Section 256(2)
Asst. Year 1988-89
N.N. Mathur & D.N. Joshi, JJ.
IT Ref. Appln. No. 78 of 1998
22nd February, 2002
Counsel Appeared
L.M. Lodha, for the Petitioner : N.M. Ranka & Sanjeev Johari, for the Respondent
JUDGMENT
N.N. MATHUR, J. :
This reference application at the instance of the Revenue under s. 256(2) of the IT Act, has been filed seeking direction against the Tribunal, Jaipur, for referring following questions of law for the opinion of this Court :
“1. Whether, on the facts and in the circumstances of the case, the Hon’ble Tribunal was right in holding in law that the expenditure of Rs. 35,207 incurred for the purchase of T.V. set for the staff was a revenue expenditure ?
2. Whether, on the facts and in the circumstances of the case, the Hon’ble Tribunal was legally correct in holding that the expenses of Rs. 1 lakh incurred by the assessee to get extension of mining lease was a revenueexpenditure?”
The respondent-assessee is a company carrying on the business of manufacturing and trading processed lumps and, powder, etc. During the asst. yr. 1988-89 in response to a notice under s. 143(2) the company produced accounts and other required details. During the scrutiny, it revealed that assessee-company had paid a sum of Rs. 1 lakh to M/s Dynamic Consultants (P) Ltd. towards the consultancy and assistance provided for preparation of application for renewal of mining lease. It was also found that under the head “Staff and labour welfare expenses” the assessee had debited the cost of colour T.V. costing Rs. 35,207. According to the company, the T.V. was provided to recreation club of the workers. As regard the expenditure in the sum of Rs. 1 lakh for renewal of the mining lease, in the opinion of the AO the assessee acquired benefit of enduring nature, hence, treated the same as capital expenditure and rejected the claim of the assessee that it was revenue expenditure. As regard the expenditure on installation of T.V. in the recreation club of the workers, in the opinion of the AO it was also a capital expenditure and as such disallowed the claim. The assessee preferred an appeal to the CIT(A) with regard to the different additions made by the AO. The CIT(A) rejected the appeal. In second appeal, the Tribunal after discussing the case law relied upon by the Revenue as well as by the assessee in detail concluded that the payment of Rs. 1 lakh to the consultant for the renewal of the mining lease was to facilitate the existing mining lease and as such no fresh lease was being acquired. Thus, the payment made was not of capital expenditure. Similarly, with respect to expenditure on T.V., the Tribunal found that it was a legitimate business expenditure as it was a routine staff welfare measure and further that the ownership of the asset is vested with the club and not with the assessee. Thus, in view of the finding, the Tribunal accepted the appeal, set aside the orders of the CIT(A) as well as the assessing authority with respect to the additions on these two items. The Department filed an application for reference of the questions of law set out therein, but the same was rejected by order, dt. 16th Sept., 1996. We have heard Mr. N.M. Lodha, learned counsel for the Revenue, and Mr. N.M. Ranka, Sr. Advocate for the assessee.
The expression ‘capital expenditure’ is not defined in the IT Act and the words ‘in the nature of capital expenditure’ occurring in s. 37(1) make the meaning of the expression more elastic in its application to the facts of each case. The consistent view of this Court is that the expression is to be construed in a business sense save insofar as there may be rules of construction applicable to it. The word ‘capital’ connotes permanency and capital expenditure is, therefore, closely akin to the concept of securing something, tangible or intangible property, corporeal or incorporeal right so that they could be of a lasting or enduring benefit to the enterprises in issue. Revenue nature expenditure, on the other hand, is operational in its perspective and solely intended for the furtherance of the enterprise. The apex Court in CIT vs. Ashok Leyland Ltd. (1969) 72 ITR 137 (SC) : TC 54R.871 has observed that this distinction though candid and well accepted, yet is susceptible to modification under peculiar and distinct circumstances. Thus, whether a particular item of expenditure constitute revenue or capital disbursement is to be determined on the facts of each case. In the instant case, the assessee purchased T.V. set for Rs. 35,000 and gave it to the recreation club of the workers. In our opinion to provide a T.V. set to the recreation club of the workers is a routine staff welfare measure and hence a legitimate business expenditure. It is also not in dispute that the T.V. set has been given to the recreation club permanently. Thus, the ownership of the T.V. does not rest with the assessee. As regard the payment of fees of Rs. 1 lakh to M/s Dynamic Consultant (P) Ltd. for the renewal of the mining lease is concerned, it is to be borne in mind that the mining lease is already in favour of the company. On expiry of the mining lease an application was required to be filed and certain formalities were to be performed. Thus, on getting a renewal of the mining lease the assessee was not acquiring any benefit of enduring nature. The payment was made to the M/s Dynamic Consultants (P) Ltd. to facilitate extension of the lease. Thus, it cannot be said to be a capital expenditure. Thus, the question raised by the revenue is purely a question of fact decided on the basis of the material on record. In our opinion no referable question of law arises from the order of the Tribunal. Consequently, the reference application is rejected.
[Citation : 258 ITR 350]
